China has invested 1.5 bln US dollars in the economy of Kazakhstan | FinReview
29 August 2019

China has invested 1.5 bln US dollars in the economy of Kazakhstan

Bilateral relations between Kazakhstan and China are developing systematically – the volume of mutual trade in the first half of 2019 increased by 31% and reached 6.8 bln US dollars. Annual investment flows of China increase by an average of 22%. Partnership relations are also strengthened by the Belt and Roadinitiative, which will allow Kazakhstan to increase trade with Europe. As the study shows, the change in GDP will be 12% with an increase in exports by 10%.

Diplomatic relations between Kazakhstan and China were established in January 1992. For Kazakhstan, the development of bilateral relations is an important part of foreign policy international activities especially during the period of globalization of the world economy.

One of the first solid contractual bases is the Joint Declaration on the Foundations of Friendly Relations adopted in 1993, has laid the basis for the cooperation between Kazakhstan and China. In subsequent years, the heads of states reached a number of key agreements, among which were agreements on defining border areas, non-use of nuclear weapons, non-interference in the internal affairs of countries, preservation of water resources, etc.

The key moment in relations between Kazakhstan and China was the Joint Declaration on the Further Development of Comprehensive Cooperation in the 21st Century adopted in 1999. The agreement reached gave a new impetus to the acceleration of economic relations. Today, China is one of the largest foreign trade partners of Kazakhstan, second only to Russia. Thus, following the results of the first half of 2019, the volume of mutual trade reached 6.8 bln US dollars, having increased by 31% compared to the same period in 2018. The trade pattern is dominated by the export of Kazakhstani products – 4 bln US dollars.

The growth of the national economy is quite strongly associated with the volume of trade, imports and exports. So, GDP growth will be approximately 12% with an increase in exports by 10%. This indicator explains the high importance of China for the economy of Kazakhstan.

In the context of rapidly changing market conditions, international trade and economic conflicts, instability of the world economy, the integration processes between Kazakhstan and China are of particular importance for reducing the impact of external risks on the development of the national economy. One of the main initiatives of relations between two countries is the “Belt and Road” program, first proposed on September 7, 2013. This initiative is able not only strengthen trade and transport links along the Silk Road, but also contribute to maintaining peace and stability both at the regional and global levels.

According to the World Trade Organization, trade of China with countries participating in the “Belt and Road” initiative exceeded 5  tln US dollars for the period from 2013-2017, and the foreign investment inflow (FDI) in these countries amounted to about 70 bln US dollars.

In 2015, the work on linking the Eurasian Economic Union and the concept of “Belt and Road” has started within the framework of the formation of the Great Eurasian Partnership. The result of the reached agreements was the signed Agreement on Trade and Economic Cooperation between the EAEU and China in May 2019. In 2018, trade of China with the EAEU countries amounted to 126.3 bln US dollars (in 2017 — 102.7 bln US dollars.

Since 2015, investment flows of China to Kazakhstan have shown positive dynamics – the average annual growth is 22%. The largest volume falls on 2018 – 1.5 bln US dollars, which is 37.6% more than in 2017 and 78.6% more than in 2015. For the first half of 2019, the gross investment inflow from China amounted to 362 mln US dollars.

The liabilities of residents of Kazakhstan to investors of China reached 15.3 bln US dollars for the first quarter of 2019. The share of China in the total liability structure of Kazakhstan (220.3 bln US dollars) was 6.9%. As for the types of economic activity, the largest volume is concentrated in the fields of transport and storage (5 bln US dollars), mining (2.6 bln US dollars),  manufacture (2.1 bln US dollars), and  construction (2 bln US dollars.

The main scope of liabilities was formed through direct investments, which amounted to 9.1 bln US dollars in the first quarter of 2019. Other forms of financing (lending, leasing, project, mixed investments, etc.) reached 6.2 bln US dollars, and portfolio investments reached only 464.8 thous. US dollars.

Portfolio investments are highly beneficial for the national economy, as they allow to raise funds without granting investors the right to control or own the enterprise. Also, this form of financing has high liquidity, meets the principles of diversification and makes it possible to independently regulate the terms of investments. Nevertheless, they are not popular in Kazakhstan. Obviously, this is due to the fact that the development of a full-fledged stock market with the ability to invest in securities, attract international issuers and integrate with international capital markets began with the establishment of the Astana International Exchange (AIX) exchange of the Astana International Financial Center (AIFC) on July 5, 2018. China was one of the first which supported the idea of ​​establishing a stock exchange – Shanghai Stock Exchange and the Silk Road Fund became AIX shareholders.

Domestic investment flows into the economy of China in 2018 amounted to 41.8 mln US dollars, which is 8.2% more than in 2017 (38.6 mln US dollars. China is in the Top 10 countries in terms of gross outflow of direct investments of Kazakhstan – the share of investments was 3.2%.

As of the end of July 2019, 2.5 thous. Chinese enterprises were registered in Kazakhstan, including 1.1 thous. operating enterprises. Also there are 3 Chinese operating banks in the territory of country: Altyn Bank, Bank of China Kazakhstan and ICBC (Commercial and Industrial Bank of China). Following the results of the first half of the year, the assets of banks reached 886.2 bln tenge, or 3.5% of the total banking sector.

55 Kazakh-Chinese projects are being implemented in Kazakhstan for a total amount of 27.4 billion US dollars. 10 enterprises were launched between 2015 and 2018.

The most significant projects are:

  • Cement production by “DanAke” LLP, China Gezhouba Cement Co. Ltd. It was commissioned in December 2018. Investments amounted to 178 mln US dollars; 226 jobs were created;
  • Production of JAC cars by DKD/SKD and CKD methods together with the strategic partner “SaryarkaAvtoProm” LLP, CMC and JAC Motors, CMC. It was commissioned in several stages: Stage I in 2015, Stage II in 2017. Investments amounted to 22 mln US dollars; 350 jobs were created.
  • Dry port in the territory of the Special Economic Zone “Khorgos-Eastern Gates”, “KTZE-Khorgos Gateway” LLP, Lianyungang Port Holding Group Co. Ltd., COSCO Shipping Lines Co. Ltd. Investments amounted to 76 mln US dollars.

13 projects are under implementation; 3 projects are expected to be launched for a total amount of 350 mln US dollars in 2019.