By the end of 2018, China had signed 170 cooperation documents under the Belt and Road Initiative (BRI) with 122 countries and 29 international organizations. Besides, it had inked production capacity cooperation documents and carried out institutionalized production capacity cooperation with 40-odd countries including Kazakhstan, Kyrgyzstan, the Philippines, Cambodia, Egypt, Ethiopia and Brazil. As the country where the BRI was first proposed, Kazakhstan has been actively participating in the Belt and Road construction, leading to the rapid development of the production capacity cooperation between China and Kazakhstan.
-- Opening a new mode of bilateral production capacity cooperation
Kazakhstan is rich in natural resources, with 90 kinds of mineral deposits in the territory among which coal, uranium, tungsten, gold, copper, bauxite, lead and zinc and other mineral reserves are among the highest in the world. Kazakhstan has abundant oil reserves, with the proven reserves ranking seventh in the world. The advantageous geographical location and ecological conditions make Kazakhstan also suitable for the development of agriculture and animal husbandry. However, the country, with a single economic structure, relies heavily on the export of raw materials, and thus it is in urgent need of economic restructuring. China and Kazakhstan have great complementarities in resource endowment and industrial division, bringing huge room for industrial cooperation. During the visit to Kazakhstan in December 2014, Chinese Premier Li Keqiang officially proposed the "International Production Capacity Cooperation" initiative for the first time, and reached an important consensus with the leaders of Kazakhstan on production capacity cooperation, opening the prelude to China-Kazakhstan production capacity cooperation and also becoming the starting point for China to carry out international production capacity cooperation.
-- Establishing normalized production capacity cooperation mechanism
In August 2015, under the witness of the heads of state of China and Kazakhstan, the two sides signed the "Framework Agreement between the Government of the People's Republic of China and the Government of the Republic of Kazakhstan on Strengthening Production Capacity and Investment Cooperation", determining the objectives, principles, areas, working mechanisms and other important contents and arrangements of production capacity cooperation between the two countries. The National Development and Reform Commission (NDRC) of China and the Ministry of Investment and Development of Kazakhstan (MID) set up the China-Kazakhstan Production Capacity and Investment Cooperation Coordination Committee to be responsible for the implementation of the framework agreement, with heads of the two organizations co-chairing the committee. The two sides have determined the project docking mechanism and designated China Overseas Development Association (CODA) and KAZNEX-INVEST, an investment company in Kazakhstan, as the lead units of the project docking mechanism to assist enterprises in project docking, tracking and updating. The two sides hold regular ministerial dialogues to update the list of key projects and resolve the problems and difficulties in the progress of projects.
-- Actively promoting introduction of supporting measures
At the beginning of the production capacity cooperation between China and Kazakhstan, CODA conducted research on hundreds of Chinese companies that had business dealings with Kazakhstan and found that all these companies complained about visa difficulties, which had not only seriously affected the implementation of these companies' projects in Kazakhstan, but also greatly restricted the enthusiasm of Chinese enterprises to invest in Kazakhstan. In order to solve the problem, after rounds of negotiations, the foreign affairs ministries of China and Kazakhstan signed the Agreement on Facilitating Business Visas for Both Parties within the Framework of Production Capacity and Investment Cooperation in December 2015 which came into effect in July 2016.
Financing difficulty is the biggest obstacle for enterprises to invest abroad. In order to solve the problem, the China Development Bank (CDB) set up a special loan valuing 15 billion U.S. dollars or equivalent RMB for China-Kazakhstan production capacity cooperation under the China-Kazakhstan production capacity and investment cooperation mechanism to support the financing of the projects included in the China-Kazakhstan production capacity cooperation list. As of the end of March 2019, CDB had issued loans of more than 1.1 billion U.S. dollars to four major projects of China-Kazakhstan production capacity cooperation.
In December 2016, the Silk Road Fund invested 2 billion U.S. dollars to establish the China-Kazakhstan Production Capacity Cooperation Fund to focus on supporting China-Kazakhstan production capacity cooperation and related investment. This is the first special fund established since the inception of Silk Road Fund. In June 2017, the governments of China and Kazakhstan signed the Agreement on Tax Exemption of Individual Types of Income for Direct Investment in Kazakhstan of the China-Kazakhstan Production Capacity Cooperation Fund, according to which, certain types of income from direct investment in Kazakhstan by the Kazakhstan-China Production Capacity Cooperation Fund is tax exempt. In 2018, the China-Kazakhstan Production Capacity Cooperation Fund acquired a portion of the equity of the Astana International Exchange, which is the first project implemented after the establishment of the China-Kazakhstan Production Capacity Cooperation Fund.
-- Fruitful results yielded in China-Kazakhstan production capacity cooperation
By the end of March 2019, China and Kazakhstan had successfully held 17 dialogues on bilateral production capacity and investment cooperation, forming 55 key projects valuing 27.3 billion U.S. dollars, which was highly appreciated by the leaders of China and Kazakhstan.
Overall, the investment entities are diversified, including large centrally-administered state-owned enterprises, local state-owned enterprises and private enterprises. The investment fields is also diversified, involving chemical, equipment manufacturing, electricity and clean energy, mineral smelting, agricultural products processing, environmental protection, building materials, finance, infrastructure, biopharmaceuticals, and industrial parks, etc.
With the in-depth development of China-Kazakhstan capacity cooperation and the implementation of a large number of projects, the win-win cooperation between the two sides began to show results. On the one hand, it has played an important role in leading and promoting the economic and social development of Kazakhstan, creating jobs, increasing tax revenue and filling in gaps in some areas. The Kazakhstan PKOP Shymkent refinery modernization & revamping project undertaken by China Petroleum Engineering & Construction Corporation has greatly improved the processing capacity and processing depth of crude oil for Kazakhstan, and created jobs for more than 4,000 local people, with a total tax payment of 82.97 million U.S. dollars. On the other hand, the cooperation has effectively driven the export of China's domestic equipment and raw materials, and promoted the Chinese standard to go global, greatly enhancing the influence of Chinese brands. According to the preliminary statistics at the end of 2018, the proposed projects to be started in 2019 in the list of key China-Kazakhstan capacity cooperation projects will drive exports of domestic equipment and raw materials valuing 4.3 billion U.S. dollars. The large-diameter welded steel pipe plant project jointly invested by China Petroleum Technology & Development Corporation and a branch of China National Petroleum Corporation in Kazakhstan established five standards for Kazakhstan, including one pipe making standard and four anti-corrosion standards. The Turgusun hydropower project in Kazakhstan undertaken by China International Water & Electric Corporation in design, supply and electromechanical installation, is mostly designed with Chinese standards. The electromechanical equipment used is also provided by Chinese domestic manufacturers, which effectively expands the Chinese standards and Equipment abroad.
-- Promising China-Kazakhstan production capacity cooperation
With the in-depth development of China-Kazakhstan production capacity cooperation, the bilateral economic and trade cooperation is enjoying a sound momentum of overall development. In 2018, the China-Kazakhstan trade totaled 19.8 billion U.S. dollars, up 10.47 percent year on year. China is Kazakhstan's second largest trading partner and Kazakhstan's second largest export destination and source of imports. In 2018, China's non-financial direct investment in Kazakhstan was 394 million U.S. dollars, a year-on-year increase of 118.89 percent.
In order to further promote the diversified and sustainable development of China-Kazakhstan production capacity and investment cooperation, experts from China and Kazakhstan jointly compiled the China-Kazakhstan production capacity and investment cooperation plan (2019-2023) in 2018. Based on the implementation of the cooperation in recent years and given the strategic development demands, resource endowments, basic industrial conditions and market demands of the two countries and other factors, the plan proposes to further deepen the bilateral cooperation, so as to provide references and guidance for continuously promoting the China-Kazakhstan production capacity and investment cooperation.
The China-Kazakhstan production capacity cooperation provides a good demonstration and model for China to carry out production capacity cooperation with Belt and Road countries. Meanwhile, it can be seen that there are still some problems and difficulties in such cooperation. For example, Kazakhstan's strict restrictions on the number of foreign labor services, visa processing difficulty, relatively lagging infrastructure and lack of professional and technical personnel have brought certain difficulties to enterprises in operations. To change the situation, the government of Kazakhstan still needs to make more efforts in infrastructure construction and professional and technical personnel cultivation, moderately increase the number of foreign labor services, and improve visa facilitation. Meanwhile, the two sides need to carry out further cooperation in the docking and mutual recognition of related standards, the enterprise credit system construction and other fields.
(Wang Kewen: Deputy Secretary General of China Overseas Development Association)
Contact to : kw_wang@263.net
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