Taking the high road

Kashgar banks on special economic zone to bring back days of economic glory

Twin 280-meter towers, seeming to grow taller by the day at a construction site in Kashgar, are expected to transform the ancient trading hub in Xinjiang Uygur autonomous region. When complete, the towers will be home to luxury hotels, high-end offices and shopping malls that will house big brands like Hilton, Louis Vuitton and Prada. Elsewhere in the city there is a bustle of economic activity, and renovation and new construction projects are at various stages of completion.

The towers are, however, expected to be the new crown jewels of the Kashgar Special Economic Zone, which seeks to make Kashgar an important trading hub and a key economic gateway in central Asia.

Kashgar, which borders Kyrgyzstan, Tajikistan, Afghanistan and Pakistan, hopes that the zone will transform China's western-most city, much like as happened with Shenzhen, a coastal city in southern China, about 30 years ago.

With a population of more than 700,000, 79 percent of whom are Uygurs, Kashgar has been an important international business hub since days of the ancient Silk Road. Rather than bank on its past glory, city officials are now contemplating plans to use its status as the only inland special economic zone in China for better gains.

Kashgar prefecture, in which Kashgar city is located, connects China with Tajikistan, Afghanistan, Pakistan, Kyrgyzstan and Uzbekistan through five land ports. About 95 percent of the goods passing through these ports are products exported from China, such as daily necessities, household appliances and machineries, says Xu Gang, deputy director of the prefecture's port administration.

The impetus for Kashgar's economic revival came after President Xi Jinping last year announced a plan to build the Silk Road Economic Belt. Kashgar's strategic location gives it an edge over others in terms of access to Eurasian countries. "The Pakistan-China economic corridor also begins in the city," says Mutalif Wubuli, commissioner of Kashgar prefecture.

In 2013, in a speech in Kazakhstan, Xi proposed that China and the Central Asian countries build an "economic belt along the Silk Road". The trans-Eurasian project would target more than 3 billion people and represent the single biggest market in the world, one with unparalleled potential.

In his Work Report delivered in March, Premier Li Keqiang said the government would push forward the establishment of the Silk Road Economic Belt, which may eventually encompass more than 40 countries.

China and Pakistan have already agreed to build a trade link to connect Kashgar with the Pakistani deep-sea port of Gwadar, which has been under the management of China Overseas Holdings Ltd since February 2013, to step up bilateral economic cooperation. Eventually, China will be able to speed up the pace at which it moves the oil it imports from the Middle East to Xinjiang, and to send exports to Europe and Africa far more quickly via Gwadar.

"The infrastructure of the special economic zone will be completed in 2015. So far, the government has invested 2.8 billion yuan ($448 million) in the new zone, and has also attracted outside investment worth 2.5 billion yuan," says Yao Wenkai, director of the Development Reform and Economic Development Bureau of the Kashgar SEZ.

Yao says that more than 47 companies have already established a presence in the partially-built zone, most attracted by preferential policies adopted by the central and regional governments, such as exempting businesses from corporate income tax for the first five years after they move into the zone.

However, a number of terrorist attacks in Kashgar prefecture in recent years have dented investor confidence, a challenge Shenzhen did not have to deal with. "We have to admit that the security issue is something both employers and employees will have to consider before moving to Kashgar," Yao says.

On April 30, three people were killed and 79 injured in a terrorist attack at a railway station in Urumqi, the capital of the autonomous region.

A little over a year earlier, 15 people were killed in an attack in Selibuya township in Bachu county. Nine assailants were shot dead by police, who said the group had planned a much larger attack in Kashgar.

On Dec 15, two police officers were killed by a group armed with knives and explosives at a village in Shufu county near Kashgar, the site of a newly constructed logistics center for the distribution of goods from southern China to neighboring countries, which became operational last year.

"I believe that the companies cannot resist the offer, especially if it is backed by good preferential polices. The central government has also outlined its priorities for channeling growth to China's western regions and it is clearly a case of first-come, first-served," he says.

Yao feels the poor transport in neighboring countries may hamper the growth of the zone. However, Wang Yongzhi, deputy commissioner of Kashgar prefecture says that new railway connections linking China with Pakistan and with Kyrgyzstan and Uzbekistan will greatly solve the problem.

"At the moment, the road linking China and Pakistan is in poor condition. Also, transportation is a seasonal affair and often affected by natural disasters. A plan to build a China-Pakistan railway is being assessed, but once it's approved and constructed it will certainly boost Kashgar's economy," Wang says.

Yao says local people must embrace the opportunities being offered by businesses moving to the zone, because many companies have complained that they are unable to attract suitable employees, despite offering relatively high wages.

The economic zone will also have a tariff-free zone, which will be fully operational this year, Mutalif, the commissioner from Kashgar, says.

"The zone, managed by the customs authorities, will also be a storage and logistics center where Chinese and foreign companies can trade freely," he says, adding that more than 16 enterprises have built manufacturing and logistics facilities in the zone.

Chang Liang, director of the tariff-free zone, says it serves four land ports, a rare situation in China. "Kashgar's neighbors and their transport systems are at an earlier stage of development, which has affected trade a lot. Also, some of the countries are unstable occasionally. For example, Irkestam, a land port in Kyrgyzstan, had to be closed temporarily in 2010 after a riot broke out in the nearby city of Osh."

Despite the challenges, Kashgar has decided to start providing duty-free shopping from next year: A 100,000-square-meter shopping area will be opened in the 280-meter tall twin towers now being built.

Visitors to Kashgar will be allowed to buy duty-free goods in the shopping area, as long as they have valid plane tickets and travel documents, officials say.

To be as successful as Shenzhen, the Kashgar SEZ needs to place itself effectively in the national strategy, says Li Yan, director of the School of Economic Studies at the Xinjiang Regional Party School.

"Kashgar needs to learn to maximize the advantages inherent in the policies prescribed by the government. China is in a different phase compared with when the Shenzhen SEZ was established, so Kashgar needs to fulfill the responsibilities the government has laid down for it."

Economic growth in China's eastern region has begun to slow and the country desperately needs to explore the markets in the western regions and Eurasian countries to sustain development. The Kashgar zone could act as a platform to attract businesses specifically seeking new opportunities in the west, Li says.

"Technological innovation and logistics are not something Xinjiang is good at, but the region shares similarities in culture and religion with the neighboring countries. We have the advantage of understanding the needs of their market and can point enterprises in the right direction," she says.

Setting up the special economic zone will not only benefit China's west, but other Central Asian countries. It will help connect the cities, which were once on the ancient Silk Road, so that people, goods and funds can begin to flow again, she says.

"Nobody could have imagined 30 years ago what Shenzhen was to become. Who knows what Kashgar will look like in 30 years' time after China presses ahead with its plans to develop the Western region," says Yuan Kaifang, a businessman from Shaanxi province who has been doing business in Kashgar city for about 25 years.

"My friends always say Kashgar is the westernmost city in a way that it is so far away from Beijing but I keep telling them that the city is the closest to Eurasian countries and encourage them to invest now before it's too late."

Yuan recalls that when he first arrived in Kashgar in 1989, the tallest building in the city was just three-stories. He was one of the first businessmen to pre-buy a suite of offices in the twin towers.

It is normal for new investors to be concerned about the effects of unrest and terrorist attacks, he says, but is keen to reassure those harboring doubts. "The truth is that opportunities won't disappear because of such attacks, and they won't affect the core social and economic development. If the government wasn't confident about the situation in Kashgar, it wouldn't have established a special economic zone here."

Gao Bo in Urumqi contributed to this story

cuijia@chinadaily.com.cn

(China Daily Africa Weekly 05/09/2014 page16)