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The development implications of China’s Belt and Road Initiative for Russia, Kazakhstan and Belarus

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The development implications of China’s Belt and Road Initiative for Russia, Kazakhstan and Belarus

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Content 1

The Development Implications of China’s Belt and Road Initiative for
Russia, Kazakhstan and Belarus

by

Nathan Hutson

A Dissertation Presented to the

FACULTY OF THE GRADUATE SCHOOL

UNIVERSITY OF SOUTHERN CALIFORNIA

In Partial Fulfillment of the Requirement for the Degree

DOCTOR OF PHILOSOPHY

URBAN PLANNING AND DEVELOPMENT

May 2019

Dissertation Committee:
Genevieve Giuliano (Chair)
Jorge De la Roca
Eric Heikkila
Jeff Nugent

2

Copyright 2019
By
Nathan Hutson
All Rights Reserved

3

Acknowledgements

I would like to thank my dissertation chair Dr. Genevieve Giuliano for her continuous
support throughout my PhD program. I would also like to thank my committee members,
Dr. Eric Heikkila, Dr. Jeff Nugent and Dr. Jorge De la Roca.

I am profoundly thankful to my wife, Maka Yaralova Hutson, my children Alec and Eric, my
father-in-law Abel Abelovich Yaralov, and my parents Anne and Mark Hutson for helping
and supporting me in innumerable ways.

I am grateful to my PhD colleagues and would particularly like to thank Seva Rodnyansky,
Raul-Santiago-Bartolomei, Maria Francesca Piazzoni, Hû e-Tâm Jamme, Julia Harten, Andy
Eisenlohr, Linna Zhu, and Gene Burinskiy.

This work was greatly aided by the staff of the World Bank, in particular Bernard Aritua,
Antoine Kunth, and Ben Reja. A special thanks to Professor Marlon Boarnet for establishing
this connection.

Finally, I would like to thank all the talented people I interviewed over the course of this
project, including Colin Flint, Yang Zhongdong, Ekaterina Mikhailova, Marsha McGraw
Olive, Yifan Liu, Dru Gladney, Bogelajiang Aikern, Karel Svoboda, David Vaisman, Regina
Goodnow, Yuval Webber, Aidana Mussina, Raushan Kumekbaeva, Beisen Ussenov, Eldar
Dyussetaev, Adyl Azhumadi, Officials at DB Schenker, Officials at Kuehne + Nagel, Nicola
Contessi, Charles Sullivan, Varvara Krechetova, Mark Meitzen, Jessica Wu, Nargis
Kassenova, Aziz Burkhanov, Alima Bessenova, Viktoria Golikova, Vera Ivanova, Alexandra
Tsvetkova, and Norbert Kriedel.

4

Table of Contents
Chapter 1: The “New Silk Road” in the Context of Eurasia’s Post-1960 Trade Trajectory 7
1.1 Introduction .................................................................................................................................................. 7
A New Role for Urumqi ................................................................................................................................. 9
1.2 What is the Belt and Road? .......................................................................................................................... 9
Table 1.1: The Cost to Import a Container 2016 ....................................................................................... 10
1.3 Coordination Challenges of the New Silk Road ........................................................................................ 10
Figure 1.1: Proposed Land Bridge Corridors ............................................................................................. 11
1.4 Background: A Supercontinent Split in Two ............................................................................................ 12
Figure 1.2: Soviet Trade with China in Current Prices .............................................................................. 13
1.5 The Trade Repercussions of Division ....................................................................................................... 14
1.6 Physical Expansion of Intermodal Capacity ............................................................................................. 15
1.7 Rail Infrastructure and the Great Western Development Strategy ........................................................ 18
Figure 1.3: Per Capita Value of Exports by Province ................................................................................. 20
1.8 Russia’s Perspective ................................................................................................................................... 20
1.9 The BRI and Russia’s Far East Development Priority .............................................................................. 22
1.10 Chapter Conclusions ................................................................................................................................ 23
Chapter 2: The Belt and Road Initiative – Connectivity and Infrastructure Gaps .......... 25
Introduction ...................................................................................................................................................... 25
2.1 Methodology ............................................................................................................................................... 26
2.2 Background and Theory: Infrastructure as the Backbone for BRI ......................................................... 26
Figure 2.1: Composite Network for the Continental Analysis .................................................................. 28
Figure 2.2 Predicted vs Actual Trade Share of Central Asian States with Various Regions as a
Percentage of Total Trade in 2016 ............................................................................................................. 29
Figure 2.3: China’s Investment in Construction by Country 2005-2007 ................................................. 30
2.3 Description of Macro Level Indicators ...................................................................................................... 30
Figure 2.4: Logistics Performance Index and 2017 GDP Per Capita for Select Countries .................... 31
Figure 2.5: Eurasian Regional Economic Performance (GDP per Capita) for China, Russia, Kazakhstan,
Kyrgyzstan and Uzbekistan ......................................................................................................................... 33
Table 2.1: Logistics Performance Index Infrastructure Scores and Rankings for Select BRI Countries
(2014-18) ..................................................................................................................................................... 34
Table 2.2: 2018 World Economic Forum Global Competitiveness Infrastructure Scores and Rankings
....................................................................................................................................................................... 35
Table 2.3 Comparison of Physical Rail Assets for Key BRI Countries ...................................................... 36
2.4 Overview of The BRI Corridors ................................................................................................................. 36
Table 2.4 Attributes of BRI Corridors......................................................................................................... 37
Figure 2.6: Alternative Routes for China-Europe Intermodal Cargo ....................................................... 38
Figure 2.7: Illustration of Existing Rail Routes Connecting Western China to Europe ........................... 39
Figure 2.8: Southeast Asian BRI Routes ..................................................................................................... 42
2.5 Current Freight Patterns and Infrastructure Barriers ............................................................................. 43
Figure 2.9: Composition of China-Europe Freight by Value and Volume by Transport Mode (2016) .. 44
2.6 Challenges to Rail Reliability ..................................................................................................................... 46
2.7 Case study: Kazakhstan Manufacturing Firm Locations.......................................................................... 48
Figure 2.10: Location of Kazakh Manufacturing Firms in relation to BRI Rail Corridors ...................... 49
2.8 BRI Projects by Country: Detailed Description of BRI Projects .............................................................. 50
Figure 2.11: Media Sentiment on Chinese Investment on Infrastructure (in terms of change from
2015 to 2017) .............................................................................................................................................. 50
Figure 2.12: Kyrgyz Civil Engineers Inspecting the Alignment for the Future North-South Highway .. 53
5

Figure 2.13: Newly Opened Angren Pap Railway ...................................................................................... 55
Figure 2.14: Rendering of Moscow-Kazan High Speed Rail project ......................................................... 56
Figure 2.15: Great Stone Industrial Park Construction Near Minsk, Belarus, March, 2018 ................... 57
Figure 2.16: Abandoned Railroad in Tajikistan ......................................................................................... 58
2.9 Summary and Conclusions......................................................................................................................... 58
Chapter 3: Analysis of Silk Road Development Needs and Geospatial Analysis of
Eurasian firms in Reference to BRI Corridors ................................................................. 60
Chapter Overview ............................................................................................................................................. 60
Part 1: Framing the Debate: Current Infrastructure and Needed Improvements .. 61
3.1 Current Conditions ..................................................................................................................................... 61
3.2 Corridor Upgrading Costs .......................................................................................................................... 62
3.3 Coordination Challenges of the New Silk Road ........................................................................................ 63
Figure 3.3.1: RZD 2016 Annual Report ....................................................................................................... 66
Table 3.3.1: Russian Federation Freight Ton-kilometers by Mode .......................................................... 67
Table 3.3.2: U.S. Freight Ton-mileage by Mode ......................................................................................... 67
3.4 The Silk Road and Eurasian Manufacturing ............................................................................................. 68
Part 2: Spatial Analysis Methodology and Findings ................................................ 72
3.5 Description of Data Sources ....................................................................................................................... 72
Table 3.5.1 RUSLANA Database Categories ............................................................................................... 73
Figure 3.5.1: Location of Russian, Kazakh and Belarussian Manufacturing firms in Relation to
Southern and Northern Silk Road Corridors. Source: RUSLANA Database ........................................... 74
3.6 Descriptive Statistics .................................................................................................................................. 75
Table 3.6.1: Russian Firms by NACE 2 Digit Sector ................................................................................... 77
Table 3.6.2: Percentage Breakdown of Total Manufacturing Firms by Region ....................................... 77
Figure 3.6.2 Change in Russian Manufacturing Firm Revenue (2009-2016) .......................................... 79
Table 3.6.3: Breakdown of Top 25 Regions by Percent Sophisticated Industry Source: RUSLANA
Database ....................................................................................................................................................... 80
3.7 Spatial Analysis Findings ........................................................................................................................... 82
Figure 3.7.1: Russian and Belarussian Container Terminals (green and purple points) in Relation to
Manufacturing Firms and BRI Rail Corridors ............................................................................................ 83
Figure 3.7.2: Average Distance of Russian Manufacturing Firms to Nearest Container Terminal in
Kilometers .................................................................................................................................................... 84
Table 3.7.1: Average Distance to Closest RZD Container Terminal by Industry Classification.............. 85
3.8 Warehouse Infrastructure ......................................................................................................................... 86
Figure 3.8.1: Distance of Manufacturing Firms to Nearest Warehouse (Kilometers) ............................ 87
Figure 3.8.2: Illustration of a Multimodal Warehousing Complex in the Komi Republic ....................... 88
Figure 3.8.3: Illustration of Nizhny Novgorod Warehouses by Size (square meters) ............................ 89
Figure 3.8.4: Russian Temporary Storage and Bonded Warehouses by Year of Registration ............... 90
3.9 Workers in Proximity to Corridors ........................................................................................................... 90
Table 3.9.1: Impacted workers by NACE Industry within the Trans-Siberian and Trans-Kazakh
Corridors ...................................................................................................................................................... 91
3.10 Belarus Firm Distribution ........................................................................................................................ 92
Table 3.10.1: Breakdown of Belarus Employment by Region by Sophisticated and Unsophisticated
Industry ........................................................................................................................................................ 93
Figure 3.10.1: Percentage of Manufacturing Employment in Sophisticated Industries by Oblast (Minsk
City and Minsk Region Combined). ............................................................................................................ 94
Figure 3.10.2: Haversine Distance of Belarussian Manufacturing Firms to Nearest Container Terminal
....................................................................................................................................................................... 95
3.11 Kazakhstan Firm Distribution ................................................................................................................. 95
Table 3.11.1: Kazakh Breakdown of Firms by Region .............................................................................. 96
Figure 3.11.2: Percent of Workers in Sophisticated Industries ............................................................... 97
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3.12 Conclusion ................................................................................................................................................ 98
Chapter 4: Political and Institutional Constraints to the Eurasian BRI........................ 102
4.1 The Role of Public Opinion ...................................................................................................................... 103
4.2 Media Coverage and Commentary of the Belt and Road ....................................................................... 104
Figure 4.1: Media Mentions of the BRI in Russian Language press by Country .................................... 105
Table 4.1: Media Mentions of the Belt and Road in the Russian Press by Source 2014-18 ................. 107
Figure 4.2: Media Mentions of the Moscow-Kazan High Speed Rail ...................................................... 108
Figure 4.3: Articles Mentioning the Great Stone Industrial Park in Belarussian Media ....................... 112
4.3 The Russian and Kazakh Alternatives..................................................................................................... 113
4.4 Factors Constraining Coordination ......................................................................................................... 114
Figure 4.4: Illustration of the Kazakh Western China – Western Europe Highway Corridor .............. 118
Figure 4.5: The Dry Port of Khorghos Showing the Discrepancy in Chinese Investment (right) with
That of Kazakh (left). ................................................................................................................................. 119
4.5 Expressions of Support and Dissent at the Subnational Level .............................................................. 120
4.6 Analysis: Is there a Nash Bargaining Solution to the BRI? .................................................................... 126
4.7 Conclusions ............................................................................................................................................... 130
4.8 Summary of Findings and Recommendations ........................................................................................ 131
Appendix .......................................................................................................................... 133
Table A1: Comparison of Firms Captured by the Trans-Kazakh and Trans-Siberian Corridors ......... 133
Table A2: Belarus Manufacturing Employment by Oblast ......................................................................... 134
Table A3: Russian Manufacturing Firms by Region ................................................................................ 135
Table A4: Breakdown of Russian Firms by Region with Percent Sophisticated and Percent
Unsophisticated ......................................................................................................................................... 139
Table A5: Manufacturing Revenue by Region in Thousands of Dollars ................................................. 149
Table A6: Exports of Innovative and Technologically Unchanged Goods and Services by Economic
Activity ........................................................................................................................................................ 153
Table A7: Kazakh Manufacturing Employment by Region and NACE Category ................................... 155
Table A8: Belarus Breakdown of Manufacturing Employment by Oblast and NACE Category ........... 156
Figure A1: Location of Xinjiang Manufacturing Firms in relation to main Eurasian Corridor Through
Kazakhstan ................................................................................................................................................. 157
Figure A2: Russian Producers of Perishable Goods (NACE 0121-0150) ............................................... 158
Figure A3: Russian warehouse under construction ................................................................................ 158
Table A9: Regional GDP Per Capita comparison of Russia, Kazakhstan and China .............................. 159
Table A10: China – BRI freight flows by commodity 2016 (MT) ........................................................... 163
Endnotes ................................................................................................................................... 164

Bibliography…………………………………………………..…………………………………………………..….………………………179

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Chapter 1: The “New Silk Road” in the Context of Eurasia’s Post-1960 Trade
Trajectory

1.1 Introduction
In the long arc of history, it can be argued that rising powers build roads while
declining powers build walls. China, with three thousand years of recorded history, has
existed long enough to see several cycles of rise and decline. At several key points of
ascendency, it has ventured out beyond its traditional homeland and served as a vanguard
of trade and exploration. It has also experienced several epochs of self-imposed isolation in
which trade in goods, people and ideas were suspended.
With such a complex and contradictory history, China’s leaders labor to construct a
coherent national narrative that justifies current political decisions based on historical
precedent. Leaders with political acumen are able to highlight those aspects of China’s
dynamic past that correlate with current political goals while downplaying aspects of
history that do not advance their objectives.
Transport infrastructure, particularly in the modern era, has often played an
important symbolic function in communicating a preferred national narrative.
1
Transport
infrastructure plays a dual role. It is functional in that it helps the country to achieve
strategic economic goals. It is also symbolic of what the country wants to convey about
itself, its values and its direction. Transport infrastructure is visible to all citizens and can
be directly experienced. Thus, investments in transport infrastructure often serve as a
potent tool to demonstrate progress and to convey a sense of national (or international)
unity.
In the United States, for example, the interstate highway system has become a
national metaphor for freedom of mobility as well as the functional backbone of the U.S.
consumer economy. Use of the interstate highway system is now an essential and shared
feature of what it means to be American. In China, the spread of high-speed rail has
recently served a similar function, both aiding China’s economic reformation and
redefining what it means to be Chinese. The comparative ease of travel to almost any point
in China made possible by the high-speed rail network generates a particularly potent
message for residents of interior and rural regions of China who have long been trapped by
inaccessibility, unable to experience the “Chinese Economic Miracle” or live the “China
Dream,” to use President Xi’s phrase. The ability to travel within a few hours from interior
cities like Xi’an to Beijing tells citizens of western provinces that they can now fully
participate in Chinese society.
Whereas the modern American transportation narrative focuses on personal
mobility, freight transportation plays a central role in the transportation narrative of China.
Images of container cranes and ships communicate the power of the Chinese
manufacturing export economy on Chinese public media. Yet until recently, the further
8

Chinese citizens resided from the Shanghai docks, the less directly connected they were to
this success story. President Xi Jinping changed this dynamic with one political
masterstroke – the launch of the One Belt, One Road Initiative in 2013. He created a
Chinese freight “origin story” that glorified the establishment of the ancient Silk Road in
present day Xi’an and connected it to China’s current position as the vanguard of
international trade.
2
For the first time, Western Chinese were not supporting players in this
story; they were at the center of it.
President Xi, who hails from a village not far from Xi’an, also placed himself within
this origin story, tying China’s past to its future in remarkably personal and emotional
terms. Consider the following lines from Xi’s 2013 speech at Kazakhstan’s Nazarbayev
University in which he first proposed the One Belt, One Road Initiative.
Shaanxi, my home province, is right at the starting point of the ancient Silk Road.
Today, as I stand here and look back at that episode of history I can almost hear the
camel bells echoing in the mountains and see the wisp of smoke rising from the desert.
3

China’s national ethos-defining project, now renamed the “Belt and Road Initiative”
(BRI), is intended to meet China’s economic goals as well as define China’s role and image
in the 21
st
century. While it is often debated whether the BRI should be regarded as an
“economic” or a “political” effort, this is a false dichotomy. Chinese economic statecraft is
rich in symbolism and embedded in history. The BRI has been adopted as much for a
domestic as an international audience. Importantly, the BRI is intended to communicate to
Chinese citizens that the country is becoming more united. This includes, in particular,
restive western provinces such as Xinjiang that have been the subject of controversial
pacification efforts as of late.
The goals of this dissertation are to examine Eurasian rail component of the Belt and
Road Initiative in order to understand the motivations of Russia, Kazakhstan and Belarus to
support/stymie the project. I seek to provide lessons for governmental or development
agencies in understanding motivations of these states to support the project based
primarily on how the project will impact direct users such as manufacturing firms.
The dissertation assesses the development potential associated with Eurasian Rail
Corridors as an overland alternative for Asia-Europe cargo. It explores how the economic
geography of Russia, Kazakhstan and Belarus may be impacted by the project depending on
which iteration of the “New Silk Road” actually develops. Through this effort, I address
questions regarding how the project may help these countries 1) Diversify their economies
2) Bolster the share of exporting firms 3) Develop more sophisticated industries? 4)
Improve the performance of undeveloped regions/cities. Ultimately, this is aimed at
determining how likely the project is to succeed as currently envisioned.

9

A New Role for Urumqi
Urumqi is the capital of China’s Xinjiang province, also known as the Xinjiang
Uyghur Autonomous Region. While Xi Jinping has romanticized Xi’an as the start of the Silk
Road, Urumqi has become the BRI’s focal point. Urumqi has been subject to a severe
crackdown on perceived security threats from the native Uyghur population in recent years
that has sparked widespread international condemnation. In addition, the Chinese state has
poured investment into Urumqi with the hope of strengthening its connection to Beijing.
At great cost, China has constructed a 2500 km high speed railroad from Xi’an to Urumqi.
Copious additional investment has been directed to improving freight rail connections to
the West. Whether these investments are ultimately viewed by the local population as a
bridge or a tether depends on the success of the BRI.
Owing to its location, Urumqi has the potential to become the “Omaha” of the
Eurasian freight rail network – an essential bridge between East and West and a major
center of trade-related jobs. According to Yang Zhongdong, a professor at Xinjiang
University, Urumqi already has a significantly more international character than other
Chinese cities, and this fact should aid its role as an ambassador city between China and
Central Asia.
4

Alternatively, if the BRI fails and Xinjiang’s economy remains isolated, China’s rail
connections to Xinjiang might be seen, along with the infamous re-education camps, as
another tool of colonization and subjection.
5
These are the stakes. This is why the BRI must
be seen as infrastructure that is more than infrastructure. Yet, despite China’s need to
successfully develop the BRI through Eurasia, China does not hold all the cards. The success
of the “New Silk Road” will also require the acquiescence of Russia – another country that
places no clear demarcation between economics, politics and historical determinism.
Kazakhstan and Belarus also have a substantial ability to positively or negatively impact
the success of the project due to their location.
While it is admirable that China is attempting to use infrastructure to create
interconnections within Eurasia, the question remains; How did Eurasia become so
disconnected in the first place? This chapter evaluates the challenges faced by the New Silk
Road through the lens of the economic history of Eurasia and illustrates how China and the
Soviet Union/Russian Federation’s unique transportation infrastructure experience colors
their approach to this megaproject.

1.2 What is the Belt and Road?
Over the last five years, China’s Belt and Road Initiative has been regularly featured
in the press. Often labeled as China’s “Grand Strategy,” the BRI is a series of rail, highway,
maritime and energy investments to reorient global supply chains, making China the
vanguard of international development while simultaneously providing domestic
development opportunities for China’s poorer provinces.
6
10

The BRI has several potential development benefits. One of the most promising
aspects is the potential for improved freight infrastructure to help mitigate the extremely
high freight transportation costs that have curtailed the diversification of the economies of
Central Asia. As shown in Table 1.1, the high cost to import a 20-ft container within the
landlocked countries of the former Soviet Union serves as a de facto tariff and a substantial
encumbrance to their economies.

Table 1.1: The Cost to Import a Container 2016
Source: World Bank

China $800
India $1462
Global Average $1877
Russia $2594
Kazakhstan $5265
Uzbekistan $6452
Tajikistan $10650
Despite global enthusiasm for the BRI, many aspects remain highly ambiguous. The
“Belt” refers to the overland component, sometimes called the New Silk Road, whereas the
“Road” refers to maritime and port investments. China’s BRI-affiliated maritime
investments are all essentially independent projects. While they are loosely affiliated with
maritime “corridors,” improvements at each port will allow the target port to trade with
essentially any other port around the world with similar attributes. Given that China has
long been active in supporting maritime improvements in Southeast Asia and other
developing countries, it is difficult to separate China’s baseline maritime investments from
investments referred to as BRI-related, with some pre-existing maritime projects
retroactively labeled as part of the BRI.
By contrast, the creation of one or more transcontinental rail corridor(s) capable of
handling significant intermodal volumes has a much more identifiable and discreet goal –
facilitating intermodal trade between western and/or northeastern China and Europe. If
intermodal rail gains a significant market share in overall China-Europe trade, it would
mark a major reorientation of global supply chains. This circumscribed goal should make it
comparatively easier to determine whether the new rail “silk road” is succeeding or failing.

1.3 Coordination Challenges of the New Silk Road
Achieving this goal, however, will be far from easy. International rail shipments
require a high level of intercountry coordination. Rail shipments only become competitive
with trucking at significant distances. Whereas rail produces lower marginal transport
costs per mile, it also requires higher fixed costs at the point of loading and unloading. For
this reason, the breakeven point for rail and trucking has traditionally been estimated at
approximately 500 miles.
7
This gives rail operators a relatively low margin for error. When
11

rail routes are too long or too slow for time-sensitive cargo, they lose market share to air
freight; whereas if intermodal shipments are too costly, they fail to take market share away
from maritime shipping due to the latter’s substantially lower per mile operating costs.
Finally, in order to establish and maintain a viable international rail service, each country
involved in the supply chain must agree to engage in regular costly maintenance of the
system and ensure that border-crossing procedures remain streamlined. A single weak link
can make the service non-viable. Given that rail often functions as a natural monopoly (or
duopoly), each country involved in the supply chain must resist the urge to exact excessive
economic rent through rail tariffs.
8
Creating a viable intermodal corridor would be
challenging even for countries with a long history of close economic and political
coordination. For China and its former Soviet neighbors who have no such shared history,
the challenge will be greater. Figure 1.1 illustrates China’s most recent conception of rail
land bridge corridors connecting China to Europe.

Figure 1.1: Proposed Land Bridge Corridors
Source: Study on Relationship between the Belt and Road Initiative and Regional
Development Strategies of China, Bulletin of the Chinese Academy of Sciences
A key feature of President’s Xi’s approach to politics is the merging of China’s
cultural and economic destiny. President Xi recently asserted, “Our civilization has
developed in an unbroken line, from ancient to modern times.”
9
This statement epitomizes
both the challenge and the opportunity of the Belt and Road. The BRI will be successful in
sustaining domestic support through the inevitable pitfalls if it is perceived a natural
outgrowth of China’s emergence on the global stage – its economic destiny. If it begins to be
perceived as a vanity project aimed at furthering Xi’s political ambitions, it is likely that the
project will be abandoned shortly after Xi’s rule of China comes to an end.
10,11
12

1.4 Background: A Supercontinent Split in Two
Despite the substantial progress China has made in opening itself to the world
through trade, the idea of China as a major force for soft-power diplomacy and statecraft
still seems ambitious. While China seems ascendant and economically open at the moment,
economic historians who take a longer view will rightly describe China as a fair-weather
player in international affairs.
12

In many ways, China’s BRI outreach is an attempt to exorcise the ghosts of the Sino-
Soviet split, which marked the country’s prior turn from Communist internationalism to a
doctrine of national self-reliance and extreme import substitution. The aftershocks of the
Sino-Soviet split are still felt today in the primitive level of physical and political
connections between China and the republics of Central Asia.
The political Sino-Soviet split definitively ended in 1989 following Gorbachev’s
landmark visit to Beijing, yet a functional Sino-Soviet split continues to endure driven by
three decades of path-dependent development that was intended to drive Eurasian
territories into the orbits of Beijing and Moscow. In the pages below, I describe how the
initial Sino-Soviet split necessitated a dramatic reorientation of China’s economy toward
international maritime trade, thereby contributing to severe regional disparity in China
and, to a lesser extent, in the Soviet Union. I then evaluate how the Belt and Road Initiative,
specifically the overland component – sometimes referred to as the “New Silk Road” – can
be seen as an outgrowth in China’s continuing container revolution that began in the late
1970s. Finally, I evaluate how the New Silk Road is perceived by Russia, whose active
participation is essential in developing the Silk Road Economic Belt.
Following the breakup of the Soviet Union, the Sino-Soviet split endured as an East
Asian–Eurasian split. The functional split continues due to a legacy of underinvestment
and/or misdirected investment leading to underdeveloped trading relationships. If
properly executed, the Belt and Road Initiative might finally begin to meaningfully rectify
this deficiency; however, it will be no small task. Figure 1.2 shows the dramatic
breakdown of what had been a thriving trade relationship between the USSR and the PRC
in 1960 and the gradual resumption of trade following the death of Leonid Brezhnev in
1982. While trade in 1989 was slightly higher than trade in the 1960, the Chinese economy
grew by a factor of almost five from $59.7 to $349.8 billion within the same period.
13

13

Figure 1.2: Soviet Trade with China in Current Prices
(Exports from and imports to the Soviet Union in millions of rubles)
Source: Soviet Economic Statistical Series http://src-
h.slav.hokudai.ac.jp/database/SESS.html
From a planning perspective, the true impact of the Sino-Soviet split lies in its
duration and its subsequent impact on the society and economy of Eurasia. For nearly
three decades there were almost no trade and transportation ties or interpersonal
exchange between the two countries. The sudden cutoff in political and economic relations
created an artificial yet multidimensional separation of Eurasia. These lands – which at one
point were described as the “Geographical Pivot of History” – became instead the most
distant and disconnected provinces of the PRC and the USSR.
The Central Asian borderlands languished during this period. Cut off from any
contact with their neighbors across the border and solely dependent on Beijing and
Moscow, the Sino-Soviet Split produced a cultural divide separating ethnic Kazakh, Kyrgyz
and Uyghur families for decades.
14
Parents on either side of the border who spoke a
common language at the time of the split had children and grandchildren more comfortable
speaking Mandarin or Russian. Yet, these descendants of the split will have a vital role in
realizing the restoration of economic linkages through the Belt and Road Initiative.
Sino-Soviet Split Brezhnev Dies
14

1.5 The Trade Repercussions of Division
The Sino-Soviet split led to a break-off in trade relations between China and the
Soviet Union, but it simultaneously cut China off from the rest of the world.
15
This break-off
in trade has often been profiled in terms of its Cold War geostrategic dimensions, yet it also
had a very practical harm. Prior to the split, Eurasia was emerging as a viable trade space.
16
From the time of the 1949 revolution, the PRC had vigorously invested in railroad
infrastructure, including connections to the western provinces. While the Chinese rail
system was far more primitive than that of the Soviet Union, it was making rapid progress
in part thanks to Soviet technical assistance, and a nascent Eurasian rail network was
forming. The first isolated rail crossing through Kazakhstan’s Alataw Pass, ironically named
Druzhba, or “Friendship,” in Russian, finally opened in 1991 after construction was
abruptly halted in the 1950s due to worsening political relations. After 1960, both the
Soviet Union and the PRC pursued industrial policies that were largely confined to their
own national borders. The Soviet Union, for its part, invested the vast majority of its Asian
rail resources in boosting the capacity of the Trans-Siberian Railway, and later in the
controversial Baikal-Amur Mainline, discussed later in the chapter.
17

We can only imagine how differently the economies of Central Asia and their
corresponding transport networks might have developed without decades of political
blockade separating the Turkic-speaking peoples of Eurasia from their cultural and
linguistic cousins in western China. This political and economic path dependence also had a
profound impact on the development of trade infrastructure within China. Imagine an
alternative historical narrative in which the PRC had maintained political ties with the
Soviet Union during the time when China abandoned import substitution in the 1970s and
early 1980s. Given the distribution of China’s population and industrial capacity at the
time, it may well have chosen a rail-based as opposed to a maritime-based strategy for its
entrance onto the global export stage. In short, the blockade of China’s western border
shifted the dynamic of which cities received investment once it re-opened to the world.
With 90% of the USSR’s energy resources concentrated east of the Urals,

the Soviet
Union’s industrial base would have been in much better position to create production
agglomerations with western China in order to produce the heavy industrial products that
China needed to modernize its economy.
18
Predictably, given the similarity in resource
endowment and economic structure of the Kazakh SSR with Xinjiang, the Xinjiang
provincial government enthusiastically sought greater coordination with Soviet Central
Asia. As noted by Jersild, “Numerous officials in Xinjiang pushed their counterparts in
Beijing for more trained cadres and hoped to increase Soviet emigration to their region.”
19
It is quite possible that the continuance of political and economic relations between the two
countries would have enabled Xinjiang to emerge as a manufacturing economy instead of
an economy driven by natural resource extraction.
A final irony is Khrushchev’s decision to turn Northern Kazakhstan and Western
Siberia into the Soviet Union’s second bread basket through the Virgin Lands program just
15

as the Chinese- Soviet relations began to fray. While this program met with mixed success,
it would have provided China with an accessible source of grain imports during periods of
food shortage.
20
Instead, China was required to quickly turn to far flung ideological
enemies, such as Australia and Canada, to import grain in order to stave off famine
following the breakdown of trade with the USSR. These new trade relationships, while
functional, cost China dearly in terms of transportation costs.
21
A militarized border with
the Soviet Union meant that China could not engage in overland trade with Eastern or
Western Europe as well. Chinese merchandise trade with the rest of the world fell from
almost 9% of GDP at the time of the Sino-Soviet split to 5% of GDP by the early 1970s.
22

China’s turn to the West to make up for the loss of trade with the Warsaw Pact
countries was not only less effective from a financial perspective, but also from a security
perspective. The Economist recently noted that China’s embrace of a maritime trade-based
economy implicitly relied on the maintenance of American military order in the Pacific as
well as foreign direct investment in its infrastructure, which it called “a remarkably
pragmatic surrender of economic sovereignty.”
23

Despite its aspiration towards self-sufficiency, China’s lagging food production
meant that it continued to be reliant on trade.
24
The Cultural Revolution further
interrupted China’s ability to move freight internally or develop the transportation
network. Both domestic and international freight train shipments were largely suspended
in the mid-1960s. By 1967 the northeast of the country was the only region that had a
functional rail system.
25
Thus, we see a dramatic reversal from the 1950s when the whole
of Eurasia was seeing increased overland trade ties and the rapid buildup of rail
infrastructure, to 1967 when rail freight within China virtually ceased.
26

Due to this dire situation, China’s first priority when it resumed trade was not the
exportation of manufactured goods. Rather it was the importation of cereal grains in order
to prevent famine. The problem was that the United States, which banned export to China,
dominated the global grain export market, making it difficult for China to secure adequate
supplies. Through its failure to find political accommodation with its neighbor, China had
made itself a virtual island and suffered all of the unfortunate transportation surcharges
associated with being an island.

1.6 Physical Expansion of Intermodal Capacity
Despite China’s new willingness to expand trade with the West, it did not have the
physical infrastructure to participate in trade on a mass scale and faced multiple systemic
bottlenecks. In the late 1970s, China increasingly sought foreign technical assistance to
overhaul its freight transportation system.
27
China’s need to accelerate the modernization
of its rail and port sector pushed the country into closer coordination with Japan, who in
many ways took over the technical advisory role abandoned by the Soviet Union. Japan was
already a global leader in maritime container handling technology and containership
construction.
28
Under Japan’s tutelage, China was in a much better position to develop
16

container technology than it would have been under the Soviet Union whose container port
technology was primitive by comparison. By the late 1970s, Japan and China had
established a relationship that was strengthened by both growing trade and growing
infrastructure coordination in the maritime field.
In 1978, China ranked 32
nd
in the world in total exports.
29
When China committed
to constructing a world-class transportation infrastructure, it did so with the explicit
aspiration of increasing international trade, allowing the country to exploit latecomer
advantage. China’s emergence as a trading nation, like that of the early United States, was
hindered by its comparative isolation from viable trading partners in its neighborhood.
Japan, the United States and Western Europe were its only viable potential trading
partners.
For this reason, China’s emergence as a trading nation could not follow a path
analogous to that of Mexico. Like China, Mexico’s economy was dominated by import
substitution for decades. However, when it decided to re-embrace trade, very little new
transportation infrastructure was required, given its close proximity to the world’s largest
consumer market. The construction of Maquiladora factories along the border essentially
allowed Mexico to borrow the U.S. highway network. Only years after mastering cross-
border shipments did Mexico embrace intermodalism.
30

In contrast, China’s viability as a consumer goods exporter required it to quickly
embrace intermodal transportation, which called for far greater capital investment,
technical capability and organizational prowess.
31
This transition necessitated a belated
yet ardent commitment to the technology of containerization, without which China’s
exports would be far less competitive.
32
China opened its first container wharf at Xingang
near Tianjin in 1978. The same year, a special committee was set up under the State
Council to plan all aspects of containerized development within the country.
33
Shanghai
would not become a major container handling center until the 1980s. Again, Japan played
an essential midwifing role in helping China to enter the containerized market. Rather than
sending container vessels directly to transoceanic ports of call as occurs today, China’s
early containerized shipments were sent in small vessels to the Japanese Port of Kobe
where they were transshipped to other international destinations.
34
While this method was
slow and inefficient, it nevertheless allowed China to establish a foothold in key export
markets.
In the early 1980’s, China under Deng pursued a two-pronged strategy of opening
up new trade opportunities through special economic zones while simultaneously
channeling state investment in critical transportation infrastructure on the East Coast.
Logically, a substantial percentage of early investment went to Shenzhen in order to
capitalize on economies of scope with the Port of Hong Kong.
35
Between 1978 and 1993,
the percentage of China’s trade via Hong Kong increased from 11% to 48%.
36
The desire of
the Chinese leadership to develop the Shenzhen economic zone as a sister port to Hong
Kong also had a political dimension as China hoped that, by emulating certain features of
Hong Kong’s export-oriented economy, it could set the stage for a smoother reunification in
17

1997.
37

It was inevitable that when Hong Kong, which possessed the world’s busiest
container port, re-entered China, China would overnight become a major player in the
global container trade market.
38
In 1985, mainland China had less than one million TEU of
capacity and was still heavily reliant on Japanese infrastructure assistance.
39
Deng Xiaoping
understood that if the PRC was still a novice in intermodal transportation by 1997, the re-
integration of Hong Kong might become an economic disaster. As the Journal of Commerce
stated in 1988, “China came late to containerization, and is hustling to make up for lost
time.”
40
Even with the modest container volume that China handled in the 1980’s, its
rudimentary freight transportation infrastructure proved to be a crucial choke point:
“Congestion has been legendary for years, with ships often waiting many weeks to load or
unload.”
41
Another article, in reference to China’s maritime expansion, stated,
The port expansion scheme has been designed to avert a national emergency. The
dramatic, steep increase in China’s foreign trade has caused serious backlogs at its
big ports. The army has been called out several times recently to assist in cargo
handling at Shanghai and elsewhere when the waiting time for ships to be unloaded
reached several months.
42

The extent of this infrastructure emergency at the ports helps to explain why Deng
Xiaoping was forced to prioritize development of coastal provinces to the detriment of
inland regions. In 1988 an analyst from Harvard predicted that transportation
infrastructure deficiencies would be the downfall of China’s furtive effort to re-invent itself
as a dynamic exporter.
The strategists don’t understand how riddled China is with infrastructure problems
(parts of the country are inaccessible by road, not electrified, have poor sewage,
water and transportation systems) … for at least the next 25 years, China is not an
economic giant asleep – it is torpid.
43

China was able to overcome these challenges and defy expectations due in part to a
favorable geopolitical climate. The end of the Cold War and specifically the end of the Sino-
Soviet split generated a significant “peace dividend” for China due to the removal of a
perceived existential threat. Beginning with the restoration of relations under Gorbachev
and accelerating once the Soviet Union formally dissolved in 1991, China’s military budget
fell from over 6% of GDP in 1983 to 1.8% of GDP by 1994. China’s emergence as a maritime
powerhouse was also greatly accelerated by a series of key World Bank loans in the 1980s.
The first loan in 1982 was to provide containerized handling equipment at the ports of
Guangzhou, Shanghai and Tianjin. Subsequent loans to improve port infrastructure and
deepen channels targeted Dalian, Ningbo and Xiamen.
44

45

The sustained redirection of state spending and heavy industrial resources away
from military spending towards massive civil works projects – such as port expansions,
highways and rail infrastructure – greatly accelerated the pace at which China could reform
18

its economy. China had the option at this time of improving trade with the newly formed
Central Asian states, yet was already heavily invested in expanding the maritime
transpacific trade model and an overall “East Coast First” development policy. In addition,
China’s new confidence in its place in the global economic order, bolstered by political
recognition and trade agreements with the United States, allowed it to permanently
commit to a trade-oriented economy as opposed to import substituting industrialization.
46

1.7 Rail Infrastructure and the Great Western Development Strategy
Ports took the early lead in China’s infrastructure revolution. It was only much later
that China endeavored to systematically improve overland freight transport. In the 1970s
and early 1980s, Chinese ports were the principal bottleneck holding back its burgeoning
export-oriented economy. Thanks largely to Japanese assistance, this bottleneck had been
greatly alleviated by the early 1990s. However, as is often the case when improving a
derelict transport network, the bottleneck was simply shifted to a different point in the
supply chain. Lloyd’s List reported in 1993,
When severe congestion hit Chinese ports earlier this year – just as it did during the
import boom in 1985 – it was the shortage of rail wagons to move the cargo out of
the port areas, rather than the lack of berths, that was responsible.
47

While China had seen success in utilizing waterways such as the Yangtze River to
move freight from the hinterland, poor freight rail connectivity increasingly constrained
the ability of export-oriented manufacturing to spread to hinterland provinces. Lloyd’s List
noted that China was planning to “push an intermodal network deeper into its hinterland,
and remove the system-wide bottlenecks it has to deal with today.”
48

To understand the role to be played by the BRI in China’s long-term reform agenda,
we first have to understand how the searing experience of perpetual infrastructure
shortage has colored the country’s worldview and approach to development, first with
respect to its own underdeveloped western provinces and now in the international sphere.
The fact that the economic performance of the eastern regions initially outstripped that of
central and western China was the result of deliberate policy. In 1988 Deng Xiaoping
stated, “The Coastal Areas, which comprise a vast region with a population of 200 million,
should accelerate their opening to the outside world, and we should help them develop
rapidly first; afterward they can help the development of the interior,”
49

50

As summarized
by Hongyi Lai,
51

This coastal focus culminated in 1988 in Zhao Ziyang’s “Coastal Economic
Development Strategy” (yanhai jingji fazhan zhanlüe). Deng promised the interior
regions that their patience in waiting their turn would eventually be paid back
generously. In 1992, he explicitly noted that the state might need to address
regional inequality by helping the less-developed regions around the end of the
19

century, when the nation’s overall living standard had reached a “comparatively
well-off level.”
True to Deng’s promise, in 1999 President Jiang Zemin announced the “Great
Western Development Initiative,” intended to bring about regional economic parity within
the PRC. The effort to develop the west should not be seen as a form of charity. Rather, it is
China’s attempt to make good on its promise to develop the west in exchange for its efforts
to help the coastal provinces achieve prosperity first. Another mistake in the conventional
wisdom regarding China’s economy is to view the coastal Chinese economy as “modern”
and the west as “backward” and uncompetitive. This assertion neglects the role that the
west (and northeast) of China has played in enabling China’s rise by providing industrial
inputs, which can be manufactured for export by the east. As early as the 1990s, some
Chinese analysts accused the east of exploiting the west by buying industrial inputs at
state-fixed low prices, modifying and exporting them for hard currency.
52

The disparity in economic performance between the east and west in China, which
had begun to narrow after the revolution, reemerged following the Open Door Policy. In the
three decades prior to the Open Door Policy, the rate of GDP growth in the western regions
of China was almost identical to that of the east. Beginning in 1978, the west’s growth
began to diverge by 4% per year, on average. One of the key drivers of this divergence was
the fact that the west was not able to significantly participate in the country’s export-
oriented growth model. By 2002, the western regions accounted for only 3.9% of total
foreign trade.
53
The west lacked not only opportunities to trade but also the requisite
infrastructure.
54
55

While it is correct to say that the western regions’ propensity for trade is now far
better than it was fifteen years ago, there are many trade dimensions in which the regional
divide between provinces is as obvious as it has ever been. One of these dimensions is the
degree to which provinces directly participate in China’s export economy. As can be seen in
Figure 1.3, the provinces that feature most prominently in the New Silk Road have
extremely modest per capita export profiles at present. Despite a strong endowment of rail
infrastructure that should make exports viable from a technical standpoint, these provinces
are today still better understood as supporting players in the export economy. They may
produce industrial inputs for goods that eventually find their way onto a ship, but they
rarely directly trade with the rest of the world.

20

Figure 1.3: Per Capita Value of Exports by Province
(thousands of Yuan per ten thousand population)

Source: Chinese National Statistics Bureau

1.8 Russia’s Perspective

This chapter has demonstrated that China’s concentrated investment in its coastal
provinces was both necessary to ensure national survival following the Sino-Soviet split
but also severely distortionary in the way the country developed. It led to diminished
economic development opportunities for inland provinces, exacerbated once
containerized exports emerged as the primary driver of China’s overall growth. The Sino-
Soviet split, however, did not only impact the Chinese side. The split’s impact on the
Soviet Union and its successor states from the calamity of the Sino-Soviet split will
undoubtedly color their impression of the Belt and Road Initiative.
In many ways, the Soviet Union paid a higher price for the Sino-Soviet split than
did China. For one, there were greater political repercussions as the schism with China
was one factor that helped justify Khrushchev’s later removal from office in 1964. The
Soviet Union had provided extremely high levels of aid and technical assistance to China
during the 1950s.
56
This does not include technical assistance and the mass transference
of Soviet intellectual property. The shock of having spent precious resources in
developing the economy of a future enemy generated severe consternation within the
Kremlin and a fundamental rethinking of the strategy for developing the Soviet Far East
and Siberia absent coordination with China. Not only could the Soviet Union no longer
hope to jointly develop industry with the more populous regions of northern China, it was
also obliged to subsidize a significant resident population along the inhospitable
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
Heilongjiang Shanghai Guangdong Shaanxi Gansu Xinjiang
2000 2005 2010 2015
21

borderlands in order to better secure the border. This reorientation had a clear impact on
transportation planners on both sides of the border to shift investment away from
integration of Eurasia and toward national rail networks.
One of China's most difficult and delicate tasks in selling the New Silk Road will be
convincing Russia that its full participation in the project, as envisioned by China, is in
Russia’s long-term national interests.

57
China must convince Russia and the other former
Soviet states that its pursuit of statecraft within Central Asia is not a fleeting dalliance but
a new permanent strategy of engagement that will help create new agglomeration
economies without threatening Russia’s traditional sphere of influence
58
Of particular
concern to Russia is that the BRI not undermine Russia’s own regional hegemonic project
– the Eurasian Economic Union (EAEU). Given the dramatic failure of the last attempt to
create a trading alliance through Central Asia, Russia will proceed cautiously.
Russia’s reluctance to buy into the transformative potential of the New Silk Road
will be colored not only by the residual political wounds of the Sino-Soviet split but also
by its own domestic experience. To Russian ears, China's glowing assertions about the
transformative impact that the new Silk Road will have in modernizing Chinese society
and opening up the forgotten parts of the nation to new development opportunities
should hold a familiar ring. Very similar assertions were attached to the Soviet Union’s
last great transportation infrastructure megaproject: The Baikal-Amur Mainline. This
railway, approximately the same length as the U.S. Transcon route, was referred to as the
“project of the century” when construction began in 1974. More than 50 percent of the
route was built on permafrost.
59
Like the “New Silk Road” of today, the Baikal-Amur
Mainline (BAM) was infrastructure with a dual economic and normative role: “The Soviet
Union employed BAM to improve the economy as well as to bolster collective faith in the
command administrative system.”
60

Similar to the BRI, the BAM’s intended function was 1) to stimulate the economies
of the Far East by opening up previously inaccessible areas, 2) to provide redundancy
with the Trans-Siberian railway in the presence of the ongoing Chinese threat, and 3) to
open up trade opportunities with Japan. All three of these goals were made more urgent
due to the lack of relations with China. The project was also oriented toward growing
international trade with Japan. The Soviets actively lobbied for Japanese technical
assistance to complete the project.
61
The BAM was hugely expensive, accounting for
approximately one percent of the entire Soviet Gross National Product from 1974 through
1984.
62
Ominously for China, the BAM was never finished during the Soviet Union's
existence. While it was officially declared completed in 1984, this was seen as a face-
saving gesture given that the deteriorating Soviet economy could no longer support the
endeavor. It is also likely not a coincidence that the project was “completed” just after the
death of its most enthusiastic backer, Leonid Brezhnev.
63

While the Soviet Union’s economic geography was less severely impacted by the
Sino-Soviet split than was China’s, it did increase the isolation of the underpopulated
Soviet Far East by preventing a potentially valuable cross-border relationship across the
Amur from forming. As of 2010 population of the entire Russian Far East was 6.3 million,
down 20% since 1990.
64
This compares to the 38.3 million residents of China’s
22

neighboring Heilongjiang province, despite a climate that is often equally severe. The
population of Vladivostok is less than 600,000 whereas Harbin, the capital of the Province
of Heilonjiang, is over 10 million. The lack of trade and the inability to create cross-border
industrial agglomerations increased the need of the Soviet government to make heroic
attempts to develop the East – efforts which continue to this day. Given Russia’s long and
frustrating path developing the Far East, its willingness to wager substantial economic
capital on developing the New Silk Road will be uncertain, particularly if Russia detects
that China’s principal goal is to develop a corridor through Kazakhstan that would
potentially divert existing traffic away from the Trans-Siberian and Baikal-Amur
corridors.
Ironically, in many ways the construction of the BAM was a delayed response
to the Sino-Soviet split. According to a declassified CIA analysis of the project from
1984,
One of the early justifications for the BAM was that it would be a more secure
alternative to the Trans-Siberian Railway for moving military supplies and
troops to the Far East. Indeed, when surveying of the BAM resumed in the mid-
1960s, Sino-Soviet relations were tense.
65

The original Trans-Siberian Railway is located perilously close to the border with
China. Given the simmering tensions with China, there was ongoing concern that the
People’s Liberation Army could quickly seize the Trans-Siberian Railway and effectively
cut off the ability of the Soviet Union to resupply the Far East. The other intended role for
the BAM was to serve as a more efficient land bridge for containerized cargo to Europe,
given its much shorter distance linking the Russian Far East to Europe. In this sense, the
BAM was to serve a role analogous to China's proposed New Silk Road, demonstrating
that this concept was well understood even as far back as the early 1980s. Yet, the
planned container port that was to serve land bridge trade at Sovetskaya Gavan never
materialized. While BAM had utility in moving lumber and other commodities, it never
served as a land bridge for consumer good exports to Europe. Somewhat ironically,
achieving greater utilization of the BAM is a prominent rationale for Russia's current
interest in the Silk Road. President Putin made explicit mention of his country’s efforts to
improve the BAM corridor during his speech at the Belt and Road International Forum in
May 2017.
66

1.9 The BRI and Russia’s Far East Development Priority
Like China, Russia has been required to substantially subsidize poorer provinces
in recent years. Following the 2009 economic crisis, Russia poured significant fiscal
support into poorer provinces in the Russian Far East. Russia’s fiscal stimulus following
the 2014-2015 crisis, however, was much less generous given that its sovereign wealth
fund was almost exhausted.
67
Given Russia’s ongoing struggle to restore economic
growth in the context of persistently low oil prices and the continuing impact of western
economic sanctions, it is increasingly searching for ways to make its more distant and
23

impoverished regions economically self-sufficient. Russia is currently in the process of
accelerating development opportunities for Eastern Siberia, the Far North, the Far East,
the North Caucasus, Crimea and the Kaliningrad region.
68

Russia’s prioritization in developing the Far East will run into a potential conflict
with China’s priority, which is first and foremost to develop its western regions. Russia
and China both stand to benefit from investment in a corridor that would service the
Russian Far East, as well as a corridor that would run through Kazakhstan and the Urals
en route to Europe. The difference is in the comparative intensity of support.
Another potential conflict is with respect to economic development strategies. At
the same time that China has been attempting to re-establish Eurasia as an active trade
space, Russia has been attempting to re-establish import substitution as a development
strategy for certain industries.
69
This has been accomplished most extensively through
the so-called “countersanctions” that Russia placed on the Western supporters of Ukraine
following the Crimean conflict.

These actions place a complete ban on the import of
agricultural goods, raw materials and foodstuffs.
70

Russia has also turned to import substitution for other industries not initially
impacted by the countersanctions.

It has even set up an import substitution commission
chaired by Prime Minister Dmitry Medvedev, pointing to a broader economic strategy.
71
The recent establishment of the Eurasian Economic Union, led by Russia and Kazakhstan,
can also be seen as a step away from trade integration with China. The EAEU is aimed at
increasing trade within the block. At the same time, this has had the effect of raising
tariffs for exports from other partners. For example, Kazakhstan raised tariffs on over
400 product types after joining the EAEU.
72
On the one hand, Russia’s overt embrace of
import substitution and trade within the former Soviet Union would seem to be a step
backwards in terms of global integration. At the same time, the formation of the EAEU
and its efforts to standardize tariffs and border crossing procedures while bolstering
border infrastructure may improve the feasibility of establishing the New Silk Road.
73

1.10 Chapter Conclusions
China’s development of the New Silk Road is in many ways the next logical step in its
ongoing emergence as the vanguard of global merchandise trade. While it is tempting to
view China's miraculous growth as if it were proceeding from a master plan, this chapter
demonstrates that China’s “natural” development as a trading nation was severely upended
by the breakdown in relations with the Soviet Union, with implications that have endured
to the present. We have come to see China’s maritime export growth model as natural
because that is the only history we know. However, China’s embrace of maritime trade was
pursued due to a lack of alternatives following the Sino-Soviet Split and was not without
cost. The highest price was paid by China’s western provinces whose economic
performance slipped further and further from that of coastal regions. The Great Western
Development Initiative was China’s first attempt to reconnect the west; it provided the
24

basic infrastructure necessary for exporting but was not successful in significantly raising
western exports as a percent of the total.
The BRI attempts to build on the success of the Great Western Development
Initiative by allowing western provinces to directly trade with Europe without passing
through east coast ports. For any merchandise that is not compatible with air cargo,
western regions would be able to bring their goods to European markets with faster lead
times than east coast provinces. This is critical given the fact that, as China moves up the
value chain, it will require supply chains with shorter lead times as each day of additional
inventory cost functions as a de facto tariff.
While China's planning documents typically depict several geographically distinct
corridors leading to Central Asia and Europe, trying to build all of these corridors
simultaneously would likely be self-defeating, as they would inevitably compete for
resources and cargo. While it is easy to draw lines on a map, actually constructing even one
corridor capable of competing with efficient existing maritime supply chains will be a tall
order. The Soviet Union tried and failed to build a Eurasian land bridge (BAM) despite the
fact that this corridor was significantly shorter, built within one country rather than four,
and not designed to handle time-sensitive cargo.
Chapter 2 will evaluate the specific technical aspects of the alternative BRI corridors
and how investment might be best staged to ensure that the corridors do not undermine
each other. Chapters 3 and 4 explore the ways in which the other participant countries, i.e.
Kazakhstan, Russia and Belarus, might benefit from the project and how they might
coordinate investment to avoid redundancy, with the participation of multilateral
institutions such as the EAEU. Given the tendency of rail corridors to benefit from
agglomerations, I predict that one corridor will eventually absorb most of the discretionary
cargo, i.e. cargo that would otherwise be sent by ship or air. This will inevitably create
tensions, given that route that gains priority will create winners and losers.
For many years, China presented a disconnect: it was simultaneously globalization’s
greatest success story from an economic perspective but was punching far below its weight
from the perspective of political statecraft. Nevertheless, many developing countries were
seeking guidance from China in order to adopt the Chinese model of development. In the
last decade or so, it has become increasingly clear that the “Chinese Development Model”
prioritizes infrastructure first out of a belief that physical connectivity must be established
prior to export development.
74

China has relied on the same general techniques of export-oriented growth –
combined with a protection and promotion of key industries – along with skill and capital
upgrading, yet China’s economic model today is also focused on reducing the severe
regional disparities within the country. Internationally, the “Chinese Model” has now
become more than the simple promotion of export-oriented manufacturing; rather, it is a
story of erasing global inaccessibility, and with it, global inequality.

25

Chapter 2: The Belt and Road Initiative – Connectivity and Infrastructure Gaps
75

Introduction
The economic development of many countries in Central, South and South East Asia
has long been stymied by inaccessibility. Export and import costs, particularly from
landlocked nations, are amongst the highest in the world and preclude the development of
time sensitive manufacturing industries. China’s proposed development of overland
corridors to Europe through these regions allows for an alternative that could permanently
shift this dynamic. In particular, the “New Silk Road” linking China to Europe, while only
one component of China’s larger Belt and Road Initiative, would directly compete against,
rather than complement, dominant East-West maritime trade routes.
To date, more than 90% of the large volume and low value freight between China and
Europe and China and ASEAN countries is moved by sea routes to maritime gateway ports.
Conversely, for freight with a value over $40,000 per ton, air transportation is the preferred
mode. Intermodal rail has played only a niche role in the overall freight portfolio, yet
improved intermodal transportation options in Central Asia are expected to generate
benefits not only to countries directly traversed by East-West rail corridors but also to
adjacent countries.
76
The largest potential growth markets for intermodal transportation is
for cargo that is relatively time sensitive, but not viable for air cargo. Many questions
remain, however, regarding the extent to which the current pattern of investments in this
region will aid the goal of establishing a fluid and coherent intermodal network within
Eurasia.
This chapter examines the extent to which investments by China connected to the
Belt and Road Initiative directly address identified infrastructure gaps and deficits in BRI-
affiliated countries, with a particular focus on intermodal projects. The chapter concludes
that while national-level infrastructure ratings are a useful starting place for analysis, they
are insufficient to determine whether individual infrastructure investments sponsored
through the BRI are optimal. This is due to the possible spatial mismatch between the
location of potential freight generators within Central Asia and the BRI corridors, which are
designed primarily to serve transit freight originating in China. The need to connect the
specific locations of freight generators with corridors envisioned to handle BRI traffic is
particularly acute in vast internally disconnected economies such as Kazakhstan and
Mongolia that are intended to play a leading role in making the overland component of the
BRI a success.

26

2.1 Methodology
This chapter first uses macro level indicators produced by the World Bank and
World Economic Forum to illustrate the potential for BRI investments to address identified
infrastructure gaps and freight connectivity deficits in the BRI region. The chapter provides
an overview and description of the land corridors and associated maritime infrastructure
that are part of the BRI.
Next, in order to illustrate how the precise location of potential freight generators
correlates with the location of corridors intended to handle BRI transit cargo through
Central Asia, the chapter highlights Kazakhstan as a case study because of its importance to
the success of the multiple trans-Eurasian corridors and the relative strength of data
quality on firm location. Manufacturing firms of different industrial classifications are
geocoded for Kazakhstan in relation to proposed BRI corridors.
Finally, it profiles these countries’ Chinese-sponsored infrastructure investments
tied to the BRI. This is intended to show the extent to which specific investments envisioned
through the BRI match identified infrastructure needs. It is also intended to unveil
commonalities in China’s approach to transport infrastructure investments in Central Asia
and shed light on the timeline and critical path of these related investments.

2.2 Background and Theory: Infrastructure as the Backbone for BRI
Connectivity to global trade and supply chains can improve economic growth,
increase household incomes, and improve the human condition. Robust freight transport
systems, however, are a prerequisite to take advantage of the emerging supply chains of
the new Eurasian trade space. Inadequate transport infrastructure, poor network
integration, difficult border procedures, and poor or irregular service levels will hinder
trade and economic growth. While the BRI is a multifaceted initiative, transport
infrastructure and connectivity should be viewed as the backbone of the BRI. Any country
seeking to benefit from the BRI needs to ensure that its transport infrastructure is
adequate to support integration into emerging value and logistics chains.
Substantial research has been performed in the last few years to assess what impact
improved transportation systems envisioned through the BRI may have on international
economic development. Recent analysis by de Soyres et al (2018) estimates the impact
that the completion of BRI corridor connections would have on trade costs. It takes into
account the concept that, for certain commodity types, the lowering of time in transit and
reliability of transit time is more important than the explicit transit cost. It notes that
shipment time can serve as a functional trade barrier that prevents certain trading
relationships from being established and that in order to understand how improvements in
transit time are likely to impact the attractiveness of trading relationships, we must
understand the elasticity of shipment time to trade flows. Administrative and border
improvements could magnify the impact of improved corridor speeds.
27

A recent report by Lu et al (2018) for RAND specifies a gravity model that captures
the trade patterns of the countries within the BRI region and trading partners to predict
the impact of a change logistics performance or transport speed on the bilateral trade. The
report uses standard country level data sources such as U.N. Comtrade. They find that a
lack of rail connection between the trading partners has a strong negative impact on
bilateral trade. They estimate that most of the Eurasian countries are expected to see a net
boost in exports of between 2 and 5 percent.
77

The impact of the BRI on network connectivity has also recently been profiled by
Derudder et al (2018), who examine overland transport connectivity improvements.
78
It
examines how interconnectedness and centrality of different transport nodes impact the
magnitude of benefit from transport connectivity improvements. It notes that artificial
constraints such as trade agreements can make two countries either more or less
connected than their physical connectivity suggests. The analysis also examines key cities
along the corridors to evaluate their degree centrality, betweenness centrality and
closeness centrality; a high score along these dimensions helps to demonstrate why cities
such as Urumqi have such importance in determining the success of the BRI. While the
researchers acknowledge that elucidating freight patterns is essential to understanding the
BRI, they conclude that there is currently insufficient publicly available freight data
detailing the movement of goods between cities to make such an analysis possible. The
researchers note that passenger flows tend to correlate with freight flows, thus passenger
volumes can be used as a rough proxy for freight volumes. Yet, it is unclear to what extent
this observation would hold true for transit freight. Figure 2.1 by Derudder et al shows
the network of connections of BRI cities.

28

Figure 2.1: Composite Network for the Continental Analysis
Source: Derudder et al (2018)

Trade within Central Asia is still significantly impacted by the legacy of Soviet
investment. A recent paper by Garleghi and Popov (2018) uses a gravity trade model to
demonstrate how factors such as physical trade proximity fail to predict the enduring high
level of trade between Central Asia and Russia and the comparatively low level of trade
between some Central Asian states and other nearby countries including China.
79
Figure
2.2 from the paper illustrates how actual trade patterns differ from model predictions.
Particularly notable are the high levels of trade with Russia by Kyrgyzstan, Tajikistan and
Kazakhstan.

29

Figure 2.2 Predicted vs Actual Trade Share of Central Asian States with Various Regions as a
Percentage of Total Trade in 2016

Source: Garleghi and Popov (2018)

Chen and Chuanhao (2018) examine the potential role that proximity plays in
determining China’s foreign direct investment (FDI) with respect to the BRI.
80
They
illustrate the growing importance of overland transport in determining FDI investment.
They also find that investments in transport infrastructure could “serve as a catalyst” for
attracting manufacturing and service investments. This indicates the potential of a
coordinated strategy in which infrastructure deficits are addressed first as an entrepot for
planned investments in manufacturing. The researchers also find that a reduction in
overland transport time is correlated with a proportional increase in FDI by China.
30

Figure 2.3: China’s Investment in Construction by Country 2005-2007
Source: Chen and Chuanhao (2018)

2.3 Description of Macro Level Indicators
The quality and capacity of the transport network in BRI countries differs greatly,
particularly for road and rail networks. There are several macro-level indicators used in
development circles for tracking transport infrastructure performance. The Logistics
Performance Index (LPI) provides one of the most widely recognized mechanisms to
quickly assess national level freight performance. It illustrates the countries for which poor
freight performance remains a major impediment to additional economic growth. Figure
2.4 provides an illustration of the LPI and per capita GDP for select BRI countries in Central
Asia.

31

Figure 2.4: Logistics Performance Index and 2017 GDP Per Capita for Select Countries
Source: Data from World Bank and Logistics Performance Index

While these national-level statistics indicate, for example, that China and
Kazakhstan have reached economic parity in terms of GDP per capita ($8,827 and $8,837),
the logistics performance of China far exceeds that of Kazakhstan. This disparity reflects
the fact that efficient logistics performance has been more important to China’s export-
driven economic development model when compared to that of Russia or Kazakhstan.
Russia has the highest per capita GDP in the region despite an LPI (2.76) that is
significantly lower than that of China (3.61) and on par with Kazakhstan (2.81). Tajikistan
has both the lowest per capita GDP ($801) and LPI (2.34) whereas Kyrgyzstan and
Uzbekistan both have LPI scores that are significantly higher than Mongolia despite
substantially lower per capita GDP. Thus, in order to understand the importance of the LPI
32

to economic performance, we must also understand overall importance of logistics in that
country’s economic development model.
Countries with low LPI can achieve relative economic success through alternate
means, such as service exports and/or natural resource development. Nevertheless, a low
LPI can constrict a country’s overall ability to diversify its economy and compete with
established exporters for new product space. Low LPI, in this way, artificially constrains a
country from pursuing industries for which a nimble supply chain is a necessity.
The LPI is a national-level statistic. As such, it does not capture regional distinctions
in logistics performance. An explicit goal of the BRI is to address regional inequality
throughout Eurasia by improving the ability of remote regions to access global supply
chains. Discrepancies in logistics performance within a country can profoundly impact the
development course of underperforming regions, trapping regions with poor infrastructure
and/or poor logistics performance in a low growth paradigm. We cannot automatically
assume that because a country scores high on the LPI, all regions directly benefit. China’s
own domestic experience is the clear impetus for the approach of rectifying regional
infrastructure imbalances. Over the past 20 years, China’s efforts through the Western
Development Strategy greatly improved transport access for remote regions. A decade ago,
China’s LPI score was already strong, yet it did not reflect the status of remote
disconnected regions like Xinjiang.
As seen in Figure 2.5, China still has substantial regional disparity, yet its approach
of concentrating infrastructure investment in western provinces has paid dividends. Even
China’s poorest provinces now have per capita GDP of over $3000 per capita. In other
Eurasian countries, however, wide swaths of pervasive regional poverty endure.
Underperforming regions that are isolated from major trade lanes stand to
disproportionately benefit from the BRI so long as it fulfills its original promise of reducing
transport costs and improving access to markets. Tables 2.1 and 2.2 show the
infrastructure rankings for select BRI countries according to the Logistics Performance
Index and World Economic Forum’s global competitiveness ranking, whereas Table 2.3
shows a comparison of the physical rail assets for key BRI countries using data from the
Organization for Cooperation between Railways (OSJD).

33

Figure 2.5: Eurasian Regional Economic Performance (GDP per Capita) for China, Russia,
Kazakhstan, Kyrgyzstan and Uzbekistan
Source: Author using data from ROSSTAT, KAZstat, Mongolian and Chinese National
Statistics for 2016

34

Table 2.1: Logistics Performance Index Infrastructure Scores and Rankings for Select BRI
Countries (2014-18)

2014
Score
2014
Rank
2018
Score
2018
Rank
Change
in Score
Change
in Rank
Belarus 2.55 86 2.44 92 -0.11 -6
China 3.67 23 3.75 20 0.08 3
Georgia 2.42 100 2.38 102 -0.04 -2
Kazakhstan 2.38 106 2.55 81 0.16 25
Kyrgyz
Republic
2.05 147 2.38 103 0.33 44
Lao PDR 2.21 128 2.44 91 0.24 37
Myanmar 2.14 137 1.99 143 -0.15 -6
Pakistan 2.67 69 2.20 121 -0.47 -52
Russian
Federation
2.59 77 2.78 61 0.19 16
Tajikistan 2.36 108 2.17 127 -0.20 -19
Turkmenistan 2.06 146 2.23 117 0.16 29
Ukraine 2.65 71 2.22 119 -0.43 -48
Uzbekistan 2.01 148 2.57 77 0.56 71

As shown by Table 2.2 below, BRI countries vary dramatically in their overall
infrastructure quality as well as the quality of individual modes. Malaysia, which has been a
major target of Chinese infrastructure lending, is currently the leader in terms of overall
infrastructure quality and has the highest score in all four modal classifications (Road, Rail,
Port and Air). Conversely, Kyrgyzstan ranks lowest not only in the aggregate score, but in
all four modal categories. As is the case with the LPI, the World Economic Forum’s
infrastructure ratings do not differentiate infrastructure endowment on a local or regional
scale.
Another deficiency in these scores is that they do not differentiate between
passenger and freight needs. For example, Japan has one of the best rail scores in the world,
yet this ranking is driven almost entirely by the quality of its passenger rail services.
Furthermore, while the index provides port scores for landlocked countries, these scores
are based on the accessibility of ports in neighboring countries and are thus beyond the
direct control of the country.
35

Table 2.2: 2018 World Economic Forum Global Competitiveness Infrastructure Scores and
Rankings

Overall
Rank
Overall
Score
Road
Rank
Road
Score
Rail
Rank
Rail
Score
Port
Rank
Port
Score
Air
Rank
Air
Score
Malaysia 21 5.3 23 5.3 14 5.0 20 5.4 21 5.7
Azerbaijan 26 5.0 36 4.8 20 4.7 40 4.7 24 5.6
China 47 4.5 42 4.6 17 4.8 49 4.6 45 4.9
Armenia 57 4.3 85 3.7 64 2.9 125 2.5 52 4.8
Tajikistan 64 4.2 70 4.1 41 3.7 132 2.0 70 4.3
Thailand 67 4.1 59 4.3 72 2.6 63 4.3 39 5.2
Russia 74 4.0 114 2.9 23 4.5 66 4.2 59 4.6
Georgia 76 3.9 82 3.8 39 3.8 69 4.1 69 4.3
Kazakhstan 77 3.9 115 2.9 32 4.1 105 3.2 90 4.0
Pakistan 82 3.8 76 3.9 52 3.3 73 4.0 91 4.0
Ukraine 88 3.6 130 2.4 37 3.9 93 3.5 92 4.0
Vietnam 89 3.6 92 3.4 59 3.0 82 3.7 103 3.8
Mongolia 105 3.3 102 3.1 69 2.8 136 1.4 116 3.2
Kyrgyzstan 112 3.0 122 2.7 76 2.4 137 1.4 120 3.1

Table 2.3 shows a quantitative comparison of rail assets for BRI affiliated countries
using data from the Organisation for Co-Operation between Railways (OSJD). China and
Russia both have a high percentage of electrified track as does Poland. In Central Asia, the
percentage of electrified track is significantly lower with Tajikistan, Turkmenistan and
Kyrgyzstan having no electrified routes. Locomotive assets serve as another potential
constraint to freight efficiency. Kazakhstan and Kyrgyzstan have approximately half the
locomotives in operation per thousand route kilometers as Russia whereas Tajikistan and
Uzbekistan have even fewer.

36

Table 2.3 Comparison of Physical Rail Assets for Key BRI Countries
Source: OSJD Bulletin of Statistical Data 2017

Total
Route
Length
(km)
Electrified
(km)
Percent
Electrified
Diesel
locomotives
Electric
locomotives
Locomotives
per thousand
route km
Azerbaijan 2,132 1,224 57% 158 94
118
Belarus 5,480 1,215 22% N/A 97
N/A
Vietnam 2,347 0 0% 282 0
120
Georgia 1,285 1,285 100% 81 120
156
Iran 6,365 194 3% 909 8
144
Kazakhstan 16,040 4,217 26% 1,217 549
110
China 67,278 43,739 65% 7,644 12,315
297
Kyrgyzstan 424 0 0% 53 0
125
Mongolia 1,810 0 0% 124 N/A
N/A
Poland 19,054 11,785 62% 142 302
23
Russia 85,545 43,852 51% 8,390 9,121
205
Tajikistan 620 0 0% 42 0
68
Turkmenistan 3,840 0 0% N/A N/A
N/A
Uzbekistan 4,642 1,685 36% 186 87
59
Ukraine 21,626 10,268 47% 1,965 1,627
166

2.4 Overview of The BRI Corridors
There are several transport routes between China and countries in Europe and Asia
that have been classified under the umbrella of the BRI. This chapter, however, focuses on
infrastructure and freight movements along corridors that either originate or terminate in
China via an overland border crossing. Within this framework, five distinct groupings of
transit corridors emerge. In many cases, good quality data on freight movement origins and
destinations into and out of China is available, which enables an assessment of physical
barriers and associated freight characteristics. Section 3 details the attributes of these five
corridors.

37

Table 2.4 Attributes of BRI Corridors

Name Route attributes Double
Tracked
Electrified Key Border Crossings
Northern Routes
Trans-Siberian
Railway (TSR)
7795 km from
Manzhouli, China to
Brest Belarus
Yes Yes Manzhouli/Zabaikalsk,
Trans-Mongolian
Railway
774 km shorter from
Beijing to Brest
compared to Manzhouli
crossing
Design speed 50km/h
No No Erlian / Zamiin-Uud
Sükhbaatar / Naushki
Central Routes
Trans-Kazakh
Dostyk
Efficiently serves Astana
30-ton axle load
Partial Partial Alashenko/Dosytyk
Trans-Kazakh
Khorgos
Uses new border
crossing at Khorgos and
serves Almaty
30-ton axle load
Partial Partial Khorgos/Horgos
Kokshetau / Krasny Yar
Southern Routes
Traceca Requires ferry
connection across
Caspian
Partial No Khorgos
Aktau
Chornomorsk

Iran-Turkey Requires Ferry
connection across Lake
Van
Partial No Sarakhs

Northern Routes
The Northern rail routes are currently the most productive rail routes for transit
cargo (cargo that moves in bond) from China to Europe. While rail is the dominant mode,
the completion of the new Trans-Siberian Highway in 2015 could both complement and
compete with Trans-Siberian rail-based supply chain. This new route has attracted long-
distance trucking between the Far East and European Russia. However, it is an excessively
long truck route for most transport to and from China and is subject to poor travel
38

conditions in winter. For these reasons, rail is projected to remain the preferred mode for
trans-Eurasian cargoes valued at under $40,000 per ton.
81
The following is a description of
the major routes.
• Trans-Siberian Railway (TSR) – this route runs from Vladivostok through Irkutsk,
Ekaterinburg and on to Moscow. From there, most Europe-bound traffic continues
through Belarus to the Polish border at Brest. Other branches connect Moscow to
the Baltic States as well as Finland via St. Petersburg. It is currently used for regular
service by operators such as DB Schenker and DHL; whose routes also include the
Trans-Mongolian and Trans-Kazakh options. Figure 2.6 shows a schematic of the
routes used by DB Schenker for moving cargo originating in China to Europe.

Figure 2.6: Alternative Routes for China-Europe Intermodal Cargo
Source: DB Schenker Sales Presentation February 2017

• Trans-Mongolian Railway (TMR) – this shorter alternative route passes through
Mongolia and joins with the TSR at Ulan-Ude. The route leaves China at Erlian and
involves an extra border crossing when compared to the TSR; however it only
requires one change of gauge, given that Mongolia uses the Russian-wide gauge. This
route is largely single tracked and not electrified, which helps to explain why it has
not yet gained significant market share. Figure 2.7 shows a schematic of rail track
conditions, produced by UNESCAP.
39

Figure 2.7: Illustration of Existing Rail Routes Connecting Western China to Europe
Source: UNESCAP

40

Central Routes
The “Central Routes” run through Kazakhstan and Russia, crossing the Chinese
border at Alashanko/Dostyk or Khorgos to Russia and Belarus. Rail is also the dominant
mode for these routes, which cross the Western Chinese border at either Alashanko or
Khorgos and then proceed across Kazakhstan. Most rail services to Europe pass through
Alashanko and then continue through Astana before heading across to the Trans-Siberian
Railway at Chistoe. An alternative route is from Khorgos to Almaty and then either
northwest to Astana or further West into Uzbekistan, to Astrakhan, Russia, and then
Saratov. As this last route involves an additional border crossing for no reduction in
distance, few services currently use it.
As with rail, several alternative truck routes currently exist. The main truck transit
route crosses the Chinese-Kazakh border at Khorgos to Almaty and then continues
diagonally across Kazakhstan on highways A-2 and E38 to Aktobe and Uralsk. The road
standard and conditions of the main highway routes through Kazakhstan is mixed, while
the main east-west transit route to and from China is currently in good condition. The
worst section for transit traffic is from Kyzylorda north towards Aktobe. This section is
planned for rehabilitation and improvement within the next five years as are certain
sections between Almaty and Astana.
82

While most road traffic crosses at Khorgos, there are a number of smaller crossing
points such as Nur Zholy (northeast of Dostyk), which can transload 2,500 trucks per day.
The road on the Kazakh side leading to Nur Zholy is poor, and freight volumes remain
relatively low.
83
At present, customs clearance delays at Khorgos and other crossings with
China make the functional capacity of these crossings lower than their physical capacity.
84

Southern Routes
The Southern corridor routing options are the only China-Europe corridors which
do not involve transiting through Russia. Rather, these corridors enter through Kazakhstan
to the Port of Atryau and then move by freight ferry across the Caspian Sea to Turkey,
Azerbaijan or Georgia. There are several alternative routes in this corridor with options by
road through Kyrgyzstan and Tajikistan. These options still require a change of rail gauge
when passing through any Commonwealth of Independent States (CIS) country.
• Traceca route through Azerbaijan and Georgia – This route follows the traditional
route from Almaty to the Black Sea ports in Georgia via Uzbekistan, Turkmenistan, a
road/rail ferry across the Caspian Sea, and then Azerbaijan to Georgia. From the
Georgian ports there are rail ferries to Varna in Bulgaria and Chornomorsk
(formerly Illichivsk) in Ukraine. Both ferry options require a gauge change at some
point to cross onto the European network. In 2017, the opening of the new Baku –
Tbilisi – Kars rail link provided an alternative to using ports in Georgia. While this
41

option provides direct access to Turkey and passage onward to Europe, it is
logistically complicated due to multiple mode changes.
• Iran – Turkey route – This route mirrors Traceca as far as Turkmenistan. It then
turns south to the Iranian border at Sarakhs. A gauge change from Russian to
standard gauge is required at the Turkmen-Iranian border. This route avoids
Azerbaijan and Georgia but still requires a ferry connection across Lake Van in
eastern Turkey.
The major physical constraint on all these routes is the difficulty they face in Eastern
Turkey because of the rugged terrain from Kars and the ferry crossing Lake Van via Iran.
No regular services currently use this route despite regular attempts in the past to
introduce a service. There are plans to construct one or more rail links which will provide a
corridor that avoids an additional border crossing with Kazakhstan. One option is to link
Torugart with Osh and Andijan in Uzbekistan. Another is to link Torugart with Dushanbe
and subsequently connect to Afghanistan via the proposed Tajikistan – Afghanistan –
Turkmenistan (TAT) railway. These routes save very little distance compared to the
existing Khorgos – Almaty – Tashkent route and do not serve any major intermediate
centers. There are two road-based options to cross from China through Kyrgyzstan or
Tajikistan, but these roads are subject to closure for sustained periods during winter.

The South-East Asia Routes
The Southeastern routes to Vietnam, Laos and Myanmar include possible on-carriage
by sea to South Asia. There are several routes linking Southern China to Southeast Asia. For
rail freight with Vietnam, long distance freight must be transshipped at the border due to
gauge differences (Vietnam does have one standard-gauge line linking Hanoi to the Chinese
border). The main road crossing to Laos is at Mohan. In addition to the road, a standard-
gauge rail line is currently under construction to join the existing connection to the Thai
railway in Vientiane. This is due for completion in early 2020 and will provide a direct
connection (with a gauge change) to Bangkok and on to Malaysia and Singapore, with long-
term plans to continue the standard-gauge throughout. Almost all freight to and from
Myanmar, therefore, goes by road due to poor rail infrastructure and operating difficulties
of the railway. Figure 2.8 shows the current status of the Southeast Asian routes.

42

Figure 2.8: Southeast Asian BRI Routes
Source: UNESCAP (2017)

South Asia
The South Asian BRI routes must cross the Himalayas. There are two corridors
across the Himalayas between China and South Asia.
• By road over the Khunjerab Pass between Kashgar and Pakistan. This road was
constructed in 1982 at an altitude of 4600 meters and is only open for seven months
of the year. China and Pakistan have discussed the construction of a standard-gauge
tunnel under the mountains that would continue through northern Pakistan to
Islamabad and then to Gwadar – a port that provides access to the Persian Gulf.
• Transit through Nepal to northern India. Currently the route operates by rail to
Qinghai, where freight is offloaded to road for transit to the Nepalese border due to
lack of freight capacity on the line to Lhasa. The freight is transshipped at the border
43

and then transshipped again at the Nepal-India border before a final transshipment
to the Indian rail network at a convenient location. With four transshipments, this
route is only attractive to niche shippers.
Underlining the importance of South Asia to the overall BRI strategy, a series of
economic corridors have also been proposed:
• China–Pakistan Economic Corridor (CPEC) – is an umbrella framework for
cooperation between China and Pakistan, under which a collection of infrastructure
projects throughout Pakistan will be upgraded and physical links between the two
countries will be improved. These CPEC projects cover infrastructure investments in
road, rail, port, energy and special economic zones. The plan is to link the seaport of
Gwadar and Karachi with northern Pakistan, as well as points further North in
Western China and Central Asia by highway. The railway line from Karachi to
Peshawar through to Xinjiang in northwestern China will also be upgraded.
• Bangladesh–China–India–Myanmar Forum for Regional Cooperation (BCIM) –
the ambition of BCIM is to develop a multimodal corridor between India and China,
passing through Myanmar and Bangladesh. The proposed corridor will link Yunnan
province in southern China to some 440 million people in Bangladesh, Myanmar,
and West Bengal. This interconnectedness is expected to facilitate cross-border
flows of people and goods, minimize overland trade obstacles, ensure greater
market access, and increase multilateral trade.

2.5 Current Freight Patterns and Infrastructure Barriers
The infrastructure and logistics requirements to support surface freight movement
between China and trading partners in Europe and the rest of the Asia vary greatly by
mode and by trade lane. A wide range of commodities are handled; from bulk freight such
as minerals and fuel; to textiles, clothing and manufactured products; and high value
products from cars to computers. Each commodity type produces different and sometimes
conflicting demands on the freight system. The value of commodities ranges from under US
$100 to over US $100,000 per ton. The required freight distance for shipments classed
under the BRI ranges from around 500 km at the shortest – for traffic between southern
China and South East Asian countries such as Vietnam and Myanmar – to over 12,000 km
for traffic between Guangdong in southern China to France. Thus, the type and scale of
infrastructure investment needed in contingent on which corridors and modes, with the
associated commodity types, receive priority.

Transit Freight between China and Europe
China-Europe freight is mostly containerized and, as shown in Figure 2.9, is
predominantly moved by maritime routes through established gateway ports. As of 2016,
about 98% of China-Europe freight is moved by maritime transport, with aviation and
44

railways accounting for 1.6% and 0.3% respectively. Air freight dominates high value
goods worth more than $40,000 per ton. Although constituting 1.6% of total freight
volume, air cargo makes up some 27% of the value of freight.
Figure 2.9: Composition of China-Europe Freight by Value and Volume by Transport Mode
(2016)
Source: World Bank

Approximately 80% of China-Europe freight by volume is carried in containers,
including 90% of imports from China and 75% of exports. In 2014, rail shipments between
China and Europe were approximately 25,000 TEUs. By 2016 China-Europe rail traffic had
grown to approximately 145,000 TEUs. The most likely projection by the International
Union of Railways is that this traffic will grow to 636,000 TEUs by 2027.
85
Of this total,
30,000 TEUs are projected to come from diversion of air freight, 276,000 TEUs are
expected to come from the diversion of sea freight, and 330,000 TEUs are expected to come
from the continued growth in rail-dependent commodities. With respect to total tonnage,
World Bank data shows that BRI related Chinese exports to Western Europe constitute
41.5 million tons, shipments to Eastern Europe 4.4 million, Southern Europe 14.8, Central
Asia 4.3 and Russia 9 million tons.
86
Thus, while Central Asia’s share of total tonnage is a
modest share of the total, it is still high when compared to Eastern Europe which has a
larger population and generally larger purchasing power.
According to operators, the existing rail service serves a supplementary role for
existing customers and is not primarily aimed at displacing maritime cargo.
87
Most of the
goods have been relatively light and higher value, for example handbags, suits and light
1.6%
26.5%
0.1%
0.4%
0.3%
1.5%
98.0%
71.6%
0% 20% 40% 60% 80% 100%
Trade Volume
Trade Value
Air Road Rail Sea
45

electronics. Most cargo is handled by 40’ containers with a maximum weight of 13 tons per
rail car.
For transit rail freight between Europe and China, further analysis shows that most
freight coming from Europe to China constitutes private cars and components, as well as
engineering products (engine parts, pumps, electrical components, etc.). These
manufactured products constitute 50% of total freight by value. Other notable products
included chemicals and timber byproducts (paper and pulp). The reverse cargo from China
to Europe is made up of machinery, equipment, and industrial products. Other commodity
classes include raw minerals and chemical materials, construction materials, clothing,
textiles, and footwear. All these major freight categories are considered competitive for
intermodal rail. They would normally not be shipped by air freight with maritime options
taking longer than most shippers would prefer.
Whether shipped by sea or rail, containers remain the preferred method of delivery
to Europe for Chinese freight. The use of containers guarantees preservation of cargo,
standard and they can facilitate unified shipping documents. Therefore, any discussion of
infrastructure and logistics needs for transit freight between China and Europe must be
primarily in the context of intermodal freight solutions.
Subsidies from the Chinese government have greatly contributed to the growth of rail
freight between Europe and China. This is especially true for feeder freight from medium-
sized locations such as Wuhan, Chongqing and Xi’an to emerging consolidation points like
Urumqi, Khorgos and Manzhouli. With rail freight rates reduced substantially due to
subsidies, many exporters and third-party logistics providers (3PL’s) switched from air and
maritime to railway transport. Yet, this opportunistic experimentation does not necessarily
suggest a permanent modal shift.
Currently, many China-Europe services are financially supported by local
governments. Inland cities such as Chengdu originally offered incentives to shippers in
order to attract foreign manufacturers away from established sites near the East Coast.
88

Cities closer to the coast, such as Yiwu, then followed to ensure that they were able to
compete with the inland cities. Finally, the emphasis on BRI from the central government –
and the targets given to various provinces – have led to further freight rate discounting to
meet annual targets of freight dispatched. The subsidies could thus be seen either as a
short-term reaction to targets or as a necessary step in promoting traffic, so that a
reasonable service frequency can be achieved, which in turn will generate traffic. Whatever
the real reason behind these subsidies, the question remains, what would happen if they
ceased? Would the market revert to what it was five or six years ago, or would the loss in
traffic be merely temporary before resuming its growth, albeit at a lower rate than in the
last three years?

46

2.6 Challenges to Rail Reliability
Container trains currently boast high schedule compliance rates with routes and
schedules negotiated and approved by all transcontinental freight traffic stakeholders.
Delivery times between China and Europe have been quite consistent since 2015.
89
The
question remains as to whether this high degree of reliability will hold once volumes grow,
placing pressure on bottleneck locations.
DB Schenker notes that the average time to change gauge at the Dostyk crossing is
1.5 days. During congested periods this time can be significantly longer. One strategy for
improving the reliability of the service is to improve cargo visibility. Currently, operators
have deployed “smartbox” technology to determine if a container in opened during the
route to prevent pilferage. While there is no solid data on the frequency of these
occurrences, operators reported that container break-ins have occurred since Eurasian rail
services began. These technologies can detect a break in however it is the responsibility of
local law enforcement to follow up on pilferage claims.

• Capacity of European railways – in general, railways on the Northern routes through
China, Russia, Kazakhstan and Belarus are primarily used to carry bulk freight
consisting of coal, iron-ore, metals, construction materials, and timber. Most of these
railways have been significantly improved over the past 15-20 years. For example, the
Russian railway lines on the TSR are electrified and double tracked, with several of the
remaining sections in process of electrification. The main constraint is in Mongolia
where the lines are single tracked and in poor condition. In general, however, since
transit trains travel on scheduled services, the railways in Russia and Kazakhstan are
more than able to accommodate these containerized services at current volumes. Some
$2.5 billion was invested in 2011–2017 in projects designed to enhance the Belarusian
railways’ capacity, including a $700 million investment in the development of Belt and
Road routes in order to address emerging chokepoints. Ongoing investments in Polish
railways and the rest of the EU rail network will alleviate the capacity constraints on
the networks. However, it is likely that in the medium-term capacity constraints on the
Polish network will affect the level of service and cap the potential growth in
throughput.

• Quality and capacity at the Brest / Małaszewicze crossing – Most trains on the Northern
routes access Europe through the Belarus-Poland link. The importance of Belarus has
been magnified by the breakdown of political relations between Russia and Ukraine,
which would otherwise serve as a secondary entry point to Europe. By the end of 2017,
the number of trains at the Brest-Małaszewicze crossing exceeded ten per day. This is
more than the crossing can efficiently handle. Due to a change in railway gauge, all
freight needs to be transshipped. As traffic has increased, this has placed considerable
strain on the transshipment facilities, particularly in Europe, which were never
designed for such volumes. Delays of up to three to four days are reportedly occurring.
47

• Train length restrictions – The length of trains depends on a number of factors: length
of station tracks, train weight, locomotive power, route profile, technical capabilities of
route legs (crossing points/stations, side tracks, passing tracks and waystations,
whether automatic block systems are employed, intermediate light signals), station
track plans and profiles, shunting work conditions at individual stations, technical and
technological capabilities of intermediate and line stations, marshalling yards, etc. The
length of the train determines the load - in this case, the number of containers loaded
onto container platforms. Most trains from China bound for Europe are 800m long.
90

Poland generally cannot accommodate trains exceeding 600 m. Therefore, part of the
transshipment’s train length must be reduced while the remaining containers wait at
the marshalling yard for the next train.

• Railway Track Gauge changes – The difference in railway track gauges among the
former USSR countries (1,520 mm), the PRC and Western Europe (1,435 mm) requires
the transshipment of cargoes or exchange of bogies at border crossing stations. Three
main options exist to increase interoperability: (a) transshipment from rolling stock
running on 1,435/1,520 mm gauge to rolling stock running on 1,520/1,435 mm gauge;
(b) use of variable gauge rolling stock, enabling seamless transition from one gauge to
another; and (c) bogie exchange at an interchange station. At present, the lowest cost
option is transshipment but it relies on capacity of siding tracks and rubber-tired
gantries (RTGs).

• Allowable axle loads and railway electrification – Differences in allowable axle loading
and the extent of electrification affect continuity of travel and speed of carriage. There
are several relevant differences both between and within countries. The difference in
loading standards recently caused a conflict between Russia and Kazakhstan when the
Kazakh national railway abruptly halted access to newer Russian grain carriers whose
axle weight exceeds 23.5 tons through its territory. The council on Rail Transport of the
CIS countries had previously approved the transit of cars with axle loads of 25 tons
throughout the CIS.
91

There are some challenges related to border and customs formalities, however
feedback from forwarders and logistics companies shows that these do not currently
represent a serious transit barrier to rail freight and trade. Most countries in the region
have started pursuing a coherent policy designed to standardize rules and documents to
minimize the time required to complete formalities. These efforts are codified in
agreements within the Eurasian Economic Union and Trans-Asian railway agreements.
Insufficient standardization of shipping documents and technical regulations
remains the main administrative and legal obstacle to the increase of freight in most
European countries. Railway freight traffic is regulated by the Convention Concerning
International Carriage by Rail (COTIF). CIS countries, the Baltic states, Albania, Iran, the
PRC, the DPRK, Vietnam, Mongolia, Hungary, and Slovakia use the Agreement on
International Goods Transport by Rail (SMGS). The use of the CIM/SMGS common
consignment note gives a strong competitive edge to railway shipments through Eurasian
48

space. However, more work needs to be done to standardize normative documents and
technical regulations used in Eurasian countries (e.g., rules for shipping various types of
cargoes, rolling stock operating parameters, environmental standards, etc.). For Eurasian
railway services, implementation of the CIM/SMGS common consignment note in electronic
form is assessed to be the biggest potential source of bottleneck alleviation that would
reduce delays and economic losses.
92
Legal and regulatory systems are being harmonized
for the transit freight through the Eurasian Economic Union, yet additional coordination
between the Eurasian Economic Union and China would be advantageous.

2.7 Case study: Kazakhstan Manufacturing Firm Locations
Kazakhstan has emerged as a critical country for the success of the Belt and Road. As
noted earlier in the chapter a number of key road and rail corridors pass through
Kazakhstan. As a landlocked country, the efficiency of rail systems is critical to the Kazakh
economy, and the national rail carrier, KTZ, commands a significant share of state
investment. Clearly, the potential for Kazakhstan to collaborate with China on rail
infrastructure is highly promising. On the other hand, because rail is so critical to the
economy, Kazakhstan will exercise caution before wholeheartedly committing to China’s
vision for rail integration.
While discussions of the BRI often focus on its impact on countries, it is important to
remember that each project’s utility is primarily measured by its benefit to direct users. In
the case of a freight rail corridor this refers to firms that generate a physical product and
depend on rail for shipping. When countries are large and physically disconnected, the
spatial relationship between the firms’ location and access points along the corridor
becomes paramount. Figure 2.10 shows the location of manufacturing firms in
Kazakhstan in relation to the main corridor currently used to handle transit freight from
China to Europe as well as a 100 KM buffer. We find that less than 10% of total
manufacturing firms in the country are within the immediate catchment area of this rail
corridor. Thus, the ability of other firms to potentially benefit from the upgrading of the
corridor will depend on improvements to connecting infrastructure and routes, both road
and rail. Differences in freight needs by sector - for example the distinct rail needs of
agricultural and mining shippers versus manufacturers of different classifications - also
must be taken into account.

49

Figure 2.10: Location of Kazakh Manufacturing Firms in relation to BRI Rail Corridors
Source: Data Geocoded by authors using data from RUSLANA business registry

50
2.8 BRI Projects by Country: Detailed Description of BRI Projects
Chinese-led investments and Chinese Overseas Direct Investment (ODI) have sparked
intense interest, excitement, and concern around the world. This is particularly the case for
the Belt and Road countries. For example, a recent analysis of media reaction to Chinese ODI
shows that most BRI countries in Central Asia demonstrate strong public media support for
Chinese investment. Even India, which has shown great suspicion regarding China’s overall
intentions has shown an uptick in support in infrastructure coordination since 2015.
Nevertheless, there are some ominous signs in countries key to the BRI effort such as
Thailand, Tajikistan, Azerbaijan, and Georgia, which have seen diminishing support.

Figure 2.11: Media Sentiment on Chinese Investment on Infrastructure (in terms of change from
2015 to 2017)
Source: BBVA Research

The following section aims to provide clarity to the discussion of how Chinese-
supported investment in BRI countries is impacting the potential development of these
economies. We present an overview of the current state of Chinese-led investments in BRI
countries and how these investments are interconnected. This overview relies on data from
the Center for Strategic and International Studies’ Reconnecting Asia project database.

51

Maritime Port Investments
Investments tied to the “21st Century Maritime Silk Road” primarily impact Southeast
Asia, South Asia, the Middle East and Eastern Africa. In total, China has financed 35 ports or
port complexes around the world in recent years, both before and after the announcement of
the Belt and Road Initiative. The maritime road investments are only indirectly related to the
transcontinental rail investments of the New Silk Road. Nevertheless, there are areas of
linkage such as rail corridors through Myanmar, Malaysia and Vietnam that could
theoretically allow for a rail connection all the way to Europe. These projects face many of the
same coordination challenges already experienced by the rail routes through Eurasia.
While China’s fiscal resources are vast, they are not unlimited. If several of its ventures
in Southeast and South Asia become excessively indebted, it may be forced to pull back on
investments in Eurasia and/or operating subsidies to existing Eurasian rail shipments, a
factor that would downgrade the potential cargo forecast for Asia-Europe rail cargo. Thus,
while this report primarily addresses overland corridor investments, the following section
outlines maritime-related endeavors.

Sri Lanka

China has invested heavily in Sri Lankan ports for transshipping cargo destined for
Europe. This investment predates the launch of the Belt and Road Initiative with China having
invested $1.5 billion in 2010 in order to construct a new port near the town of Hambantota.
The port did not begin to operate until 2017 when the new port was handed over to China for
a 99-year lease.
93
This occurred after the port was operated unsuccessfully by Sri Lanka since
2012, racking up debt in the process.
94

India expressed concern that these maritime
investments might be easily converted to military use, now that China de facto owns the port
complex along with 15,000 acres of surrounding land.
China has also invested heavily in Sri Lanka’s premier port of Colombo. China has
invested $1.4 billion in land reclamation in the surrounding area.
95

It may invest an
additional 3 to 4 billion dollars in the port in the near future.
96

Sri Lanka is ideally suited for
China as a transshipment hub as it allows Chinese maritime trade to serve South Asia, West
Africa and Europe.

Myanmar

Another controversial aspect of China’s maritime investments has been a recent slew
of maritime investments in Myanmar. Myanmar has only recently emerged from a decades-
long dictatorship, during which all aspects of development, including infrastructure, severely
deteriorated. Myanmar is also politically and institutionally weak when compared to other
countries in the region.

52
The coast of Myanmar provides China with the most direct access to the Bay of Bengal
and points west while avoiding the Malacca straits. China has invested in two ports in
Myanmar. Its principal investment is in the state of Rakhine. This is the site of one new port in
which the Chinese government has recently acquired a 70% stake, following the creation of
an industrial park in 2015.
97
Recently, the government of Myanmar has balked at the
proposed $7 billion cost of the port, known as Kyaukphyu. This caution is quite
understandable given the recent experience of Sri Lanka. The port along with the
surrounding industrial park has a price tag of approximately $10 billion. The government of
Myanmar is concerned that through this venture, China is creating a debt trap, meaning that
the deal is too good for the government to turn down given the country’s acute need for
infrastructure investment but also too risky given the small size of Myanmar’s economy. With
a capacity of 4.9 million TEUs, the proposed port would rival the Port of New York / New
Jersey in size.
Beside the sheer size of the project, two additional risk factors are present. The first is
that the port is to be constructed on a virtually uninhabited marshy island off the northwest
coast of Myanmar. This difficult and isolated location will drive up construction costs and
present the potential for huge cost overruns should the site present unforeseen engineering
challenges.
98
Secondly, the port is located far from any population center. Ports that do not
have a captive hinterland tend to suffer from large fluctuations in cargo demand. In addition,
it is very difficult to make long-term cargo projections in such a scenario, which would
complicate the ability of the port to attract private sector bond financing. The success of the
port is largely contingent on the completion of road and rail connections from Yunnan
province that have been highly controversial. Construction of the railway is still uncertain.
99

Myanmar is, of course, no stranger to overbuilt infrastructure. The new capital city of
Naypyidaw was built as a greenfield site between 2002 and 2012. With a current population
of approximately one million, Naypyidaw would be the closest major city to the port of
Kyaukphyu.

Malaysia
China has been investing in a number of Malaysian port projects. Unlike Myanmar,
Malaysia is a strong middle-income country with a robust high-tech manufacturing export
sector. The key to Malaysia’s success as an exporter are its container ports – principally Port
Klang and Port of Tanjung Pelepas, which has grown since its opening in 2000 to a capacity of
12.5 million TEUs.
100

China is currently investing in a $27.4 billion Malaysian East Coast rail link, which will
connect Port Klang with Kuantan Port.
101
In July 2018, the project was suspended at the
behest of the Malaysian side as it sought to renegotiate the terms with China. This willingness
to suspend potentially transformative projects shows that Malaysia, as a relatively rich
country, has a better ability to walk away from investments if they are seen as too risky.
Compared to a country like Myanmar, Malaysia would be less likely to fall into a “debt trap”
when presented with a “take it or leave it” offer from China. The decision to suspend the
project came after a new government came to power and questioned the decision of the
previous government to stay in the deal even after costs rose by 50%.
102
This pattern of

53
events closely resembles the ill-fated port of Hambantota in Sri Lanka. Malaysia’s negotiating
strategy may, for this reason, be illustrative of the approach that would be adopted by other
middle-income countries, i.e. Russia, Belarus or Kazakhstan, in their negotiations with China.

Investments in “Silk Road” Countries

Kyrgyzstan
Kyrgyzstan’s economy will be significantly impacted by BRI corridors connecting
China to Europe as well as corridors connecting Central Asia to Pakistan and Iran. It is one of
the poorest countries in Central Asia with a per capita GDP of less than $1,000.
The majority of transport-related investment in Kyrgyzstan thus far is in the road
sector. China has invested specifically in road improvements in Bishkek, but has not been
the largest player in transport infrastructure investment.
103
The Export-Import Bank of
China funded Alternative North-South Road Phase 1. At a cost of $400 million, this is the first
phase of a larger project that is intended to improve the ability of China to export goods by
road to Uzbekistan and Kazakhstan via Kyrgyzstan.
104
The second phase of the project will
cost $284 million. Given the small size of the Kyrgyz economy, this is a significant and highly
risky undertaking.
Figure 2.12: Kyrgyz Civil Engineers Inspecting the Alignment for the Future North-South
Highway

When compared to China, a much more significant share of investment thus far has come
from the Asian and Eurasian Development Banks. The Export-Import Bank of China,
however, has invested in a major road rehabilitation effort at Osh-Batken-Isfana.
105

54
Kazakhstan
Many of Kazakhstan’s rail and port investments have been driven by its own
infrastructure plan, entitled Nurly Zhol, that was enacted in parallel with the Belt and Road
Initiative.
106
Major projects include the Arkalyk-Shubarkol Railway. Construction on the line
started in 2012 and was aimed at improving transport between central and northwestern
Kazakhstan. It was funded by Kazakhstan’s national railway monopoly and received no
support from China.
The same is true for the Zhetygen-Khorgos Railroad, which is an essential corridor
improvement for Silk Road shipments from Wester China to Europe. While the project
definitely aids China’s goals for improved regional connectivity, the project was funded by
KTZ, the national rail monopoly. In addition, the Zhezkasgan-Saksaulsk Railway, which
improves connections from Dostyk to the Port of Aktau on the Caspian Sea, was constructed
without direct Chinese support and was contracted to the Kazakh company Zhol Zhondeushi
as part of Nurly Zhol.
With respect to road corridor investments, the Western China-Western Europe
Highway project has been funded with assistance from the World Bank. Other projects such
as the Beineu-Aktau highway have received technical assistance from the Asian
Development Bank. China is, of course, involved in constructing its half of the Khrogos Dry
Port at the Chinese-Kazakh border. Yet the Kazakh side of the port remains underdeveloped.
China is also involved in development at the Caspian Port of Aktau. Chinese transport
investment in Kazakhstan includes significant warehousing and inland port investments at
Khorgos as well as new investments in the Aktau seaport.
107

The analytical site Finprom has quantified China’s estimated transport investment in
Kazakhstan of the years 2018-2019 at $4.4 billion, spread over 51 separate investments.
Direct investments constitute 60% of this total.
108

Nevertheless, while Kazakhstan has had arguably the most prominent role outside of
China in framing the New Silk Road, the majority of Kazakhstan’s rail improvements
originate from a domestically-determined project list encapsulated in Nurly Zhol and funded
through that national rail monopoly without Chinese assistance.

Uzbekistan
Uzbekistan has seen substantial rail investments, including the construction of double
track and electrification. The Angren Pap railway, considered a Belt and Road project, is
valued at $1.6 billion and is financed by Government of Uzbekistan at $1.1 Billion, the Export-
Import Bank of China at $350 million, with the remainder provided by the International Bank
for Reconstruction and Development (IBRD). China’s involvement in this project was
technical as well as financial. Chinese engineers assisted Uzbekistan in completing the longest
tunneling project in Central Asia (19.2 km) through the China Railway Tunnel Group.
109
This
project is controversial in that it allowed Uzbekistan to bypass Tajikistan, thereby depriving
Tajikistan of a vital source of transit revenue. There is concern that by eliminating transport

55
links for through cargo, Tajikistan will become even more isolated within the region.
110
This
is an example of how BRI investments are not always a win-win. Uzbekistan’s gain from the
new corridor is Tajikistan’s loss. This could partially explain the finding that Tajik media’s
portrayal of Chinese infrastructure investment has become more negative since 2015.
Ironically, Uzbekistan and Tajikistan – who have had a tense relationship – have
taken other steps to restore transit relations with the recent reopening of direct flights
between Tashkent and Dushanbe for the first time in 25 years.
111
Rail electrification is
another major goal for Uzbekistan. The most substantial rail electrification investment is
Bukhara-Samarkand Railway Electrification, which was completed in 2016 at a cost of
$387.5 million.
112

Figure 2.13: Newly Opened Angren Pap Railway

Russia
The largest joint Chinese-Russian investment project currently underway is the
Moscow-Kazan high-speed railroad – the first link of what is eventually intended to be a
Moscow to Beijing high speed corridor. While the majority of funding for the project has
come from Russia, China is also contributing a $6 billion loan to support the project, out a
total estimated cost of $24.5 billion. Original cost estimates have almost doubled since first
proposed from an original cost estimate of $14.4 billion.
113
Recently, the project has been
opposed by the Russian Minister of Finance due to a sharply negative net present value.
114
As
this corridor is aimed primarily at passenger trains, it is not expected to substantially bolster
freight handling capability for Asia-Europe cargo. Nevertheless, the corridor may relieve
some passenger trains from Moscow to Kazan, thereby providing additional capacity for
freight trains.
China has a modest investment portfolio in the Russian Far East, accounting for 7% of
total foreign investment in the RFE in 2017. Moscow is keen to boost this total, but thus far
has not found large transport infrastructure projects in the Far East attractive to Chinese
investors.
115

56
Figure 2.14: Rendering of Moscow-Kazan High Speed Rail project
Source: https://www.railway-technology.com/projects/moscow-kazan-high-speed-rail-line/

Belarus
The Export-Import Bank of China has invested $81 million in the electrification of the
Gomel-Zhlobin-Osipovichi rail section. This corridor can be expected to handle trans-
Eurasian cargo. Notably, the contribution of the government of Belarus to this project was
only $14 million.
116

Far more prominent is the “Great Stone Industrial Park” which is being established
with $3 billion in funding from the China Development Bank and the Export-Import Bank of
China. China’s strong investment in establishing a trade hub in Belarus is risky given
Belarus’ reputation as a politically and economically isolated nation. While Belarus has made
some attempts to open up its economy in recent years, there are serious questions as to
whether it is ready to serve as a logistics hub for international cargo.
117
Belarus’ border with
Poland is currently the largest bottleneck for Silk Road shipments and it is therefore logical
for China to have a key interest in bolstering the countries intermodal capacity.
Nevertheless, there has so far been no direct attempt by China to address the capacity of the
Brest/Małaszewicze crossing.

57
Figure 2.15: Great Stone Industrial Park Construction Near Minsk, Belarus, March, 2018
Source: http://www.industrialpark.by/

Turkmenistan
The Atamurad-Imamnazar Railway, at a cost of $2 Billion, is the single largest rail
investment and connects Turkmenistan to Afghanistan. There are relatively few road
corridor improvements underway in Turkmenistan connected to international cargo.
Tajikistan
Russia has begun coordination with Tajikistan on constructing a new railway Russia-
Kazakhstan-Kyrgyzstan-Tajikistan (Karamika-Vahdat Section), at an estimated cost of $2.5
Billion.
118
However, this project is not yet under construction and is still uncertain.
In addition, the government of Tajikistan plans a new rail connection to China through
Kyrgyzstan.
119
Approximately 296 km of the line would be on Tajik territory. The estimated
construction costs are $3.2 billion. Tajikistan has seen substantial deterioration of its once
robust Soviet-era rail stock due to a lack of funds for maintenance.

58
Figure 2.16: Abandoned Railroad in Tajikistan
Source: https://eurasianet.org/uzbekistan-new-ferghana-railway-plan-tweaks-tajikistan

Georgia
The Republic of Georgia has played an unexpectedly strong role in the handling of
Belt and Road traffic. This has been driven by Georgia’s infrastructure investments,
particularly at the Port of Poti and the Baku-Tbilisi-Kars railway. Georgia has seen a rapid
turnaround of its international reputation from being ranked as one of the most corrupt
states in the world to one of the most business-friendly former Soviet states.
120
It has
established partnerships with Azerbaijan and Turkey to improve intermodal capacity and
has thereby aided Azerbaijan and Turkey in their goal of bolstering transport connections
that bypass their shared adversary, Armenia. China has, up to this point, not been the leading
funder of Georgia’s infrastructure improvements. While relations with Russia have
improved somewhat since the ouster of Mikhail Saakashvili, Georgia is trying to prevent a
return to reliance on Russia for its infrastructure funding.
In addition to the Baku-Tbilisi-Kars line, another major project currently underway is
the Tbilisi Railway Bypass project. The project aims at improving overall rail performance
within the city of Tbilisi and may have some benefits for transit cargo on the Baku-Tbilisi-
Kars route as well.
121
Once again, while China Railway No. 23 Bureau is listed as a contractor
on the project, it is not its financier. China also currently has no role in the first phase of the
Anaklia Port Project, though China Railway International Group visited the project in
February 2018 and is seen as a potential future financier.
122

2.9 Summary and Conclusions
In the first five years following the announcement of OBOR, China has engaged in
substantial ODI and technical assistance throughout Southeast Asia and Eurasia. Prior to the
announcement, national-level infrastructure deficits were already known and quantified
through indices such as the Logistics Performance Index, a World Economic Forum Global
infrastructure rating. This chapter began with an evaluation of infrastructure performance by

59
country and by mode and asked the question: how well do China’s BRI investments
correspond to the actual needs that have been identified in these countries?
We find that Chinese aid has not been evenly spread throughout the region. Rather,
some countries have commanded a series of interconnected infrastructure investments,
while others have seen one or two significant projects. Many other countries in the region
have seen little direct Chinese investment in the area of freight transport infrastructure.
When examining BRI countries with direct impacts on Eurasian connectivity, six
countries stand out as particularly significant recipients of aid aimed at improving freight
connectivity, namely, Sri Lanka, Myanmar, Malaysia, Uzbekistan, Kazakhstan, and Belarus.
The common thread tying together Sri Lanka, Myanmar, Kazakhstan, and Belarus is
their strategic location. Myanmar will host the essential corridor for avoiding the straits of
Malacca; Sri Lanka provides China with an essential trans-shipment hub for maritime
commerce through the Suez Canal; Kazakhstan provides the essential corridor for shipments
from western China to Europe; and Belarus has become the essential gateway – and most
significant bottleneck – for Eurasian rail traffic to Europe.
China has made more modest investments in Cambodia and Kyrgyzstan. These are
countries that have very poor infrastructure quality and low GDP per capita. Despite
substantial needs, they have seen little direct infrastructure investment by China. In addition,
China seems to have little to no active transport investments in Tajikistan and Georgia. The
latter seems to still be looking primarily to the West for transport investment.
Two potentially troubling signs for China are its recent experience in Malaysia with
respect to the East Coast Rail Link and in Russia with the Moscow-Kazan high speed rail line.
These two middle income countries have shown increasing apprehension about committing
to whole scale infrastructure coordination with China. It is still unclear whether these are
isolated cases or if they represent a broader trend.

60

Chapter 3: Analysis of Silk Road Development Needs and Geospatial Analysis of
Eurasian firms in Reference to BRI Corridors

Chapter Overview
This chapter examines the potential of industries in Russia, Kazakhstan and
Belarus to benefit from alternative proposed rail routes through Eurasia. I categorize
industries by their potential for improving the complexity and competitiveness for
export and examine their access to intermodal rail facilities. GIS is used to examine the
economic geography of Belarus, Russia and Kazakhstan to illustrate how their base of
manufacturing spatially correlates with the proposed transport corridors on the New
Silk Road.

The first half of the chapter is broken into four sections. In section 3.1 I assess the
economic conditions of different regions within these countries to show where
potential labor cost savings could be realized through interregional trade. In section 3.2
I examine specific infrastructure requirements of the corridors. Section 3.3 examines
common problems with rail coordination along with international comparisons.
Section 3.4 examines Russia’s own self-diagnosis of its economic development needs
and discusses how the Silk Road may fit within this overall strategy.

The second half of the chapter illustrates the spatial analysis findings. Section 3.5
describes the data sources used for firm level analysis. Section 3.6 presents descriptive
statistics of firms by location and NACE industrial classification. Section 3.7 combines
data on Russian firm location with the location of corridors and rail terminals to
illustrate how accessible firms of different classifications are to key corridors. Section
3.8 illustrates how warehouses complicate the connection between firms and rail
infrastructure. Section 3.9 extends the analysis to show the impact on workers. Section
3.10 presents a similar analysis for Belarus whereas 3.11 addresses Kazakhstan. Finally,
3.12 concludes.

Despite Russia, Belarus and Kazakhstan’s current low profile of manufactured
exports, I find these countries are well suited to take advantage of improved intermodal
access that could be brought about through investment in the Silk Road rail corridors.
In large part, this is due to the dominant role rail freight continues to play in the region
and the tight clustering of manufacturers with rail terminals.
123
Despite the enormous
size of the area, a very high percentage of manufacturing firms have ready access to one
or more rail ingress points. I define such an ingress point for the purposes of this
chapter as rail terminals capable of handling containerized cargo.

Russia and Kazakhstan have low export penetration of European and Asian
markets partially because manufacturers cannot transport products in a timely or cost-

61
effective manner. The lack of transport accessibility discourages the development of
high tech and/or time sensitive exports and promotes a continued reliance on resource
exports, which do nothing to advance the sophistication of either economy. Senior
Russian economists have long recognized this deficiency as a key impediment to
economic upgrading.

I further identify a potentially problematic discontinuity in the priorities of China,
Russia and Kazakhstan that may complicate the successful realization of trans-Eurasian
trade. Two Eurasian corridors, referred to here as the Trans-Siberian and the Trans-
Kazakh, handle Asia-European cargo. The corridor that would most benefit the internal
development of China and Kazakhstan runs through Western China, Kazakhstan and
Southern Russia, yet Russia’s own internal development would be most improved from
the development of the Trans-Siberian corridor that would connect to Northwest China.
I quantify the extent to which the Trans-Siberian corridor will serve a larger percentage
of Russia’s overall manufacturing base, particularly in the Russian Far East which is
Russia’s principal development priority. Given the high cost associated with effectively
maintaining even one efficient intermodal corridor of this length, I argue that this
dichotomy in priorities is a substantial risk factor in the project’s long-term viability.
Part 1: Framing the Debate: Current Infrastructure and Needed Improvements

3.1 Current Conditions

A recent report from the United Nations Economic and Social Commission
for Asia and the Pacific (UNESCAP) describes the current quality of road and rail
infrastructure linking Eurasia. It confirms that, for the Eurasian Northern Corridor
Routes, all the corridors designed to carry Silk Road traffic are already in use, except for
some linkages through Mongolia. Thus, the “New Silk Road” is somewhat of a misnomer.
The (rail)road itself already exists and can handle modest volumes of trade. Yet, these
volumes are insufficient to create a major re-orientation of existing supply chains.

The New Silk Road has been analogized to the Panama Canal as opening a new
avenue for merchandise trade that did not previously exist, however a more precise
analogy is to the Panama Canal expansion completed in 2016. The original Panama Canal
had become obsolete by the year 2000 because it could only accommodate modest-sized
vessels as opposed to the newer, larger vessels that offered lower costs per sailing day.
The government of Panama had a decision to make. It could either take no action and
continue to exact rent from the existing infrastructure, meaning the canal would play an
increasingly insignificant role in global trade patterns. Alternatively, it could take on a
hugely expensive and uncertain infrastructure project to expand capacity to handle the
largest containerships. If the project were to succeed, it would be an essential component
of Panama’s economic modernization, yet failure could have driven the small economy to
bankruptcy.

62
To compete for discretionary cargo, the Canal Authority constructed a second
canal permitting vessels as large as 13 thousand TEU to traverse it as opposed to the old
maximum of 5 thousand TEU. In the same way, today there are two rail corridors
suitable for trains from China to Europe. Yet, the capacity of the corridors is only
sufficient to allow a modest number of trains to pass. Similarly, for the Silk Road to
constitute more than a trickle of the massive Asia-Europe trade lane, substantial capacity
improvements, particularly at border chokepoints, will be required. Russia, Kazakhstan
and Belarus therefore must make a decision. They can either preserve the status quo and
collect transit fees on a reliable niche cargo flow or make substantial investments in the
hope of attracting existing discretionary cargo from maritime trade lanes.

In some ways, the Panama Canal expansion was more difficult than the proposed
New Silk Road. For one, the cost of the expansion at $5.4 billion seems modest by U.S.
standards but was incredibly high given the Panamanian GDP at the time the project was
first proposed in 2006 ($18 billion). In addition, the canal expansion could only begin to
generate revenues once fully complete. By contrast, the rail improvements necessary to
bring about improved service on the trans-Eurasian corridors can be developed on an
incremental basis. Separate investments can have independent utility. In addition, while
the cost is substantial, it is far smaller as a percentage of the total size of the economies
of the participant countries.

In other important ways, however, upgrading trans-continental rail corridors is
more challenging. The Panama Canal project was a single massive undertaking
geographically confined to one country. Eurasian rail upgrading involves shared
investments across several different countries. It is a patchwork of separate investments.
Ironically, the fact that each project will have independent utility may inhibit the
completion of the overall vision. The Panamanians had no choice but to keep building
until the project was completed. The Eurasian countries essentially have numerous
second-best alternatives wherein they could conclude that the corridor is “good enough,”
and further investments would not recoup their cost. In addition, the Silk Road requires
far greater opportunities for free riding, given how one country can hold back its own
investments and benefit from the investments of the other countries, including those
made by China.

3.2 Corridor Upgrading Costs

Not only are the main routes linking Western China to Europe already
constructed, most of the routes are already double-tracked.
124
For comparison, in the
United States the full double tracking on the major intermodal corridors is only now
nearing completion.
125
In short, by international standards, the New Silk Road is already
relatively advanced.

The UNESCAP report estimates the cost for double tracking the remaining
sections at $4 million per kilometer, and electrification at $2.3 million per kilometer.
Additional longer-term improvements that would enhance corridor efficiency include:

63
additional siding infrastructure to improve train length, continuously welded rail and
grade crossing improvements and grade separations that would improve the speed and
safety of rail operations. If these estimates hold, the capital requirements of the New Silk
Road corridors would compare favorably to some of the more capital intensive BRI
related projects, such as the $20 billion East Coast Rail Link from which Malaysia
recently withdrew due to fear of an unsustainable debt burden.
126

As of 2017, the primary section of the Trans-Kazakh Corridor (N2) that was still single
tracked is between Urumqi in China and Almaty in Kazakhstan, which includes the primary
dry port of Khorgos. It is notable that the section of railroad linking Harbin to Chita is
currently undergoing electrification. In addition, the only two sections of the line that are
currently not electrified on the Trans-Kazakh route are relatively short sections leading for
Khorgos to Alamaty and Kokshetau to Petuhovo. (See Chapter 2) It is likely not a coincidence
that these two sections both straddle an international boundary. UNESCAP estimates that the
Russian Federation still needs to upgrade 431 km to double track. The two sections of route
that require double tracking are from Karimskaya to Zaybaykalsk in Primorky Krai and
Grodekovo to Ussuriysk, near Vladivostok. Thus, the major sections of corridor requiring
double tracking are in the Russian Far East as opposed to the Uralic connection to
Kazakhstan. While the segments that require double tracking seem modest in terms of total
distance, there remain several notable engineering difficulties.

The report also notes that significant deficiencies in track condition and rolling stock
for the corridor currently exist in both Kazakhstan and Russia. Kazakhstan, for example, has
severe track maintenance needs with an estimated 70% of track kilometers requiring
rehabilitation.
127
Even without the Silk Road’s additional traffic, the network through this
region suffers from significant deferred maintenance. The question remains whether
increased traffic through the corridor would lead the government of Kazakhstan to bolster
expenditures on maintenance, or if this would only worsen the problem, eventually leading to
a reduction in service quality.

3.3 Coordination Challenges of the New Silk Road

International rail shipments require a high level of international coordination. Rail
shipments only become competitive with trucking at significant distances. Whereas rail
produces lower marginal transport costs per mile, it also requires higher fixed costs at the
point of loading and unloading. For this reason, the breakeven point for rail and trucking has
traditionally been estimated at approximately 500 miles in the U.S.
128
While differences in
highway quality and topography make rail more competitive at shorter distances in certain
situations, the basic economics of freight rail service are similar around the world.

Except cases in which the commodity is very heavy with a low value per unit of
weight, the cost advantage of rail compared to trucking tends to be modest. In the U.S., the
most important commodities handled by rail, when measured by tonnage, include coal, grain,
gravel and sand. These low-value goods are not what China envisions as the driving force of
development under the Belt and Road initiative. Rather, China’s prime focus in pushing the
development of the overland Silk Road has been on containerized products, which are high
value, time sensitive and can be moved by truck or by ocean vessel as readily as by rail.

64
Rail operators of containerized goods have a low margin for error when competing for
discretionary cargo. When rail routes are too long or slow for time sensitive cargoes, they
lose market share to airfreight. If intermodal shipments are too costly, they fail to take
market share away from maritime shipping due to the latter’s substantially lower per mile
operating costs. The New Silk Road will be competing against a maritime Asia-Europe trade
that has benefitted from decades of Chinese investment. In fact, many of the other BRI
investments, such as the proposed rail connection to Myanmar through the China-Myanmar
Economic Corridor that would allow shipments to avoid the Strait of Malacca, promise to
make the maritime option faster, thereby potentially undercutting the attractiveness of the
overland alternative.
129
The continuous improvement of maritime shipping makes the
upgrading of Eurasian rail corridors more complicated. The level of service these corridors
must achieve to be attractive to discretionary shippers is a moving target.

Finally, to establish and maintain a viable international rail service, each country
involved in the supply chain must agree to engage in regular costly maintenance of the
system and ensure that border-crossing procedures remain streamlined. A single weak link
can make the service non-viable. Governments have already implemented several
international agreements and conventions to facilitate this process.
130
These include the
International Convention on the Harmonization of Frontier Controls of Goods (Geneva, 21
October 1982). China has not yet ratified this agreement. Other important agreements
include the Intergovernmental Agreement on the Trans-Asian Railway Network, which has
been ratified by China, Russia, and Mongolia and signed but not ratified by Kazakhstan. All
the relevant parties have signed the Intergovernmental Agreement on Dry Ports as well as
the Agreement on International Goods Transport by Rail (SMGS Agreement). The
Intergovernmental Agreement on Dry Ports entered into force in 2016 after ratification by
the requisite eight signatories. Despite these agreements, China and its former Soviet
neighbors have no shared history of similar cooperation, making their challenge significantly
greater.

Given that rail often functions as a natural monopoly or duopoly, each country
involved in the supply chain must resist the urge to exact excessive economic rent through
rail tariffs.
131
I explore this institutional deficit in greater detail in Chapter 4. An additional
complexity in creating a viable intermodal corridor is that it has not historically been the
most productive form of rail service in the Belt and Road countries. In Russia, Kazakhstan
and China, intermodal plays a small share in the overall tonnage mix when compared to
traditional bulk commodities. For this reason, the national rail systems of these countries can
be expected to make the investments that first benefit their core customers rather than a
promising but unproven intermodal market. The Soviet rail network was also designed
primarily to handle bulk commodities. For these goods, time in transit is less important than
minimizing ton-km cost. The common maximum weight per axle for grain cars in the
Eurasian rail network is 23.5 metric tons and most grain carriers are 4 axle cars.
132

Intermodal trains require different service characteristics because they operate at higher
speeds. As a rail network becomes more congested and handles trains with different
operating conditions, it requires improved siding infrastructure and signaling systems to
prevent bottlenecks from forming.

65
Figure 3.3.1 shows the commodity makeup of rail shipments for overall and export
cargoes in the Russian Federation for 2016. Containerized shipments accounted for only 54
of 1,222 million tons of cargo handled by Russian railways in 2016.
133
This equated to 1.543
million TEU. Containerized goods are classified as “average margin” commodities compared
to “high margin” commodities, like ferrous metals and chemicals.

Coal shipments also remain a major focus of the Russian railway system and the
largest export by tonnage. This dynamic holds true for China and Kazakhstan and stands in
sharp contrast to the U.S. where coal volumes have declined for many years, thereby driving
the recent enthusiasm of the U.S. Class I’s for intermodal.

The purpose of this argument is not to undermine the concept of the New Silk Road at
its inception, but rather to contextualize the priorities of countries other than China.
Russian rail operators have reason to support intermodal shipments, but not if these
services undermine their core commodity sectors. This is also an example of the internal
disconnect within Russia. Russia’s elite economists have long argued that the country must
develop more technologically advanced manufactures. On the other hand, the Russian rail
monopoly, which dominates almost 90% of total freight movement within the country as
shown in Table 3.1.1, has a vested interest in preserving the status quo. While
manufacturers might be collectively more important to the economy, it is unlikely they can
coordinate their efforts to force the rail monopoly to change course.

66

Figure 3.3.1: RZD 2016 Annual Report

Source: https://ar2016.rzd.ru/pdf/ar/en/en-annual- report-pages.pdf

67

As shown in Table 3.3.1., rail constitutes almost 90% of total freight in the Russian
Federation is handled by rail. This makes rail performance in the Russian Federation critical to
overall performance of the economy. In the United States, by contrast, rail is used for a much
smaller percentage of total freight tonnage. The same is true in Europe. For this reason, small
improvements to rail efficiency can have dramatic improvements in economic efficiency.

Table 3.3.1: Russian Federation Freight Ton-kilometers by Mode

Rail 2343 87%
Road 235 9%
Water 108 4%
Air 7 0%
All 2,693

Source: RZD Annual report (2016) Inland waterway and sea combined. Does not include
pipeline.

Table 3.3.2: U.S. Freight Ton-mileage by Mode

Rail 2,547 41%
Truck 2,990 48%
Water 716 11%
Air 18 0%
All 6,271

Source: Bureau of Transportation Statistics (2015) Rail and multiple modes combined. Does
not include pipeline.

68
3.4 The Silk Road and Eurasian Manufacturing

A shared development goal for Russia, Kazakhstan and Belarus is to improve the overall
competitiveness of the manufacturing sector and thereby diversify away from natural
resource dependence. Researchers at Moscow’s Higher School of Economics identified the
small percentage of Russian manufacturing firms that engage in regular exports as a
significant encumbrance to Russia’s long-term development and economic upgrading.
Specifically, Golikova et al. note that only approximately 10% of Russian manufacturing firms
regularly export. For this reason, the vast majority of Russian firms do not directly compete
against foreign firms and are not exposed to the constant market feedback that helps drive
product improvement and innovation.

This study is grounded in economic development literature regarding “learning by
exporting” effects. Martins and Yang note that exporting is positively correlated with
increased competitiveness, particularly for developing economies.
134
As firms compete in
international exports, they are compelled to improve product quality and supply chain
efficiency. In addition, Aiyar finds that a diversified export base along with a robust freight
infrastructure is essential for middle-income countries seeking to avoid growth
slowdowns.
135
Felipe also notes that development depends not only on boosting total
exports but also on exports of more technologically sophisticated products, such as
products for which fast delivery times are key.
136

Golikova et al. examine the empirical evidence behind the “learning by exporting”
model, which judges to what extent Russian firms actually improve their global
competitiveness and the quality of their products. One should note that of the Russian firms
that do technically export, a significant percentage only export to other former Soviet
republics such as Ukraine or Belarus. While these shipments to CIS countries technically
count as exports, they do not have the same positive impacts on product quality as exports to
advanced economies such as Europe or Japan.

Empirical evidence for “learning by exporting” is made more complex by the chicken
and egg problem: can one say that firms are more innovative because they export, or is there
a self-selection bias because they were more innovative to begin with, and that is why they
started exporting? Scholars disagree on how to measure when a firm is acting in an
innovative manner. Factors such as R&D expenditure can be used as a proxy for innovation,
however when firms are relatively small, capital expenditure in research may actually detract
from the ability to export.
137
Less formal/quantifiable methods include the transfer of tacit
knowledge from foreign partners. Golikova also notes that, according to the Schumpeter
theory of innovation, firms in a free trade environment are generally exposed to more
intense competition and therefore have a greater incentive to innovate. The effect of export
exposure on innovation also varies by industry. Low-tech industries have less of an incentive
to innovate compared to high tech industries. The manufacture of any product requires a
unique combination of knowledge and skill, in addition to access to capital.

69

Product Complexity Index

Recently, researchers at the Harvard Kennedy School have assigned complexity values
to specific product types. The logic is that as products grow more sophisticated, fewer
countries have the accrued expertise to the produce them. Consequently, manufacturers of
these products will have greater market power on the world stage. Countries advance their
economy by increasing the percentage of complex products they manufacture and
decreasing the share of non-complex products. Each product is therefore assigned a
complexity value on an index, referred to as the Product Complexity Index which includes
only exports rather than total production. In describing the product complexity index,
Hausmann and Hidalgo note the limitations of an export-oriented focus:

This Atlas (of economic complexity) relies on international trade data. We made this
choice because it is the only dataset available that has a rich detailed cross-country
information linking countries to the products that they produce in a standardized
classification. As such, it offers great advantages, but it does have limitations. First, it
includes data on exports, not production. Countries may be able to make things that they
do not export. The fact that they do not export them, however, suggests that they may
not be very good at them.
138

A significant disconnect between production and trade applies to Russia, Kazakhstan
and Belarus, where the variety of manufacturing is far more varied than the basket of exports.
The distance from potential export markets and/or low-quality trade infrastructure is another
rationale for why a country may be unable to export the products it produces domestically,
even if they meet international quality standards. To gain a better understanding of the future
potential of a country with a low export profile, one must create more complete
understanding of its industrial base, not only its current export basket.

All the countries of the former Soviet Union suffered what Dani Rodrik refers to as
premature de-industrialization. Countries with diversified industrial sectors reverted to an
overreliance on natural resources or informal services. Many former Soviet industries wilted
with the end of Soviet production subsidies and exposure to higher quality Western imports,
yet the RUSLANA data shows that the industrial base of these economies remained
surprisingly broad for the domestic market.

Combining the findings of Hausmann and Hidalgo and Golikova, one can conclude that
the best export strategy for Russia, Belarus and Kazakhstan to improve the growth potential
of their economies is to create products that score high on the product complexity and export
them to developed markets. This would enable a greater transference of tacit knowledge and
improve the incentive for innovation. For this reason, I identify clusters of industries that
meet this standard to determine their potential to develop into exporters of technologically
advanced products. These industries are termed “sophisticated” for the purposes of this
discussion because they tend to produce complex products with higher levels of embedded
skills.

70
We have two putative causes for a low export profile in Russia, and by extension the other
post-Soviet republics. First, Russia manufactures low quality and uncompetitive products, and
second, potentially competitive products are inaccessible due to poor transport connectivity. To
rectify either of these problems, innovation is required. This will either be an innovation in the
production process leading to improved products, or an innovation in the supply chain to allow
products to reach their intended markets efficaciously.

Typically, when the term “innovation” is used in economics, it refers to improvements
in the production process. What China is championing through the BRI, however, is a series of
supply chain innovations that would allow a previously unused overland transport option to
gain a significant share of Asia-Eurasia-Europe trade. Supply chain innovations are, in fact,
another source of “learning by exporting.” The first company that attempts to export to a new
market is often unsuccessful, which lets other companies avoid the same mistakes. In the
West, there are several examples of economic wunderfirms who owe much their financial
success to supply chain innovations rather than production innovations. For example, IKEA is
a manufacturer of “low tech” furniture made of wood, plastic and particleboard. IKEA’s
products, thus, would score very low on the Harvard Index of Product Complexity. The
company’s innovations in terms of part interoperability, collapsibility to lower shipping
costs, and using warehouses as retail outlets brought about lower costs and improved
profitability. Therefore, while sophisticated industries tend to produce more fertile ground
for technological innovation, innovation can occur even for industries that produce non-
complex products. In the developed world, there are a number of firms that have embraced
just-in-time inventory processes to lower inventory costs. Up to this point, however,
countries with unreliable transport systems, most of whom are in the developing world, have
had no chance to exploit these innovations.

Rodrik notes that economic development is a process of “self-discovery” in which one
cannot say, at the onset, which products or industries a country will thrive in producing. A
major difficulty that countries attempting to colonize new markets face is that the innovations
of first movers who attempt to introduce new industries produce positive externalities, but
these are not internalized due to free entry.
139
With free entry, a country struggles to discover
what it is good at producing as the first movers bear all the risk. In the former Soviet countries,
most firms have never exported outside of traditional markets. Given that the former USSR is a
large market that is physically disconnected from global markets due to distance and poor
transport infrastructure, firms will see few rewards and many risks in introducing direct
exports to Europe or East Asia. This creates a first mover disadvantage, which could inhibit a
coalition of shippers and their representative from taking appropriate collective action.

Opportunities for Increased Regional Trade

Russia and Kazakhstan’s roles as energy exporters have consistently kept currency and
labor rates artificially inflated. Even during Russian recessions, the country’s wage rates and
per capita GDP remained significantly higher than that of China and other East Asian trading
partners, even when controlling for education and/or productivity. For this reason, neither
Russia nor Kazakhstan developed exports based on comparative advantage in terms of labor
rates. In other words, only in rare circumstances did it make sense for a Chinese firm to import
from a Russian manufacturer based on labor cost advantages. Recently, however, a significant

71
shift has occurred due to the precipitous growth of the Chinese economy and the sustained
drop of the sanctioned Russian economy. Russian and Chinese GDP per capita and labor rates
have reached a rough parity.

Within these very large and diverse countries, substantial regional disparities exist.
The per capita GDP in in Russia’s poorest provinces, located in the Caucuses, is only about a
fifth that of Beijing. Even “working class” provinces such as Chonqing, known for the mass
production of laptop computers, now have per capita GDP that is equal to that of Saint
Petersburg region.

Kazakhstan also has substantial regional disparities. Kazakhstan’s wealthiest
province, Aktrau, has a higher per capita income than Moscow, yet its poorest, South
Kazakhstan, has a lower per capita income than any province in China. Kazakhstan has a
GINI index of .26 compared to .42 for China and .41 for Russia, yet this relative equality on
the national scale masks a regional inequality that is comparable to Russia and China.
140
If
one thinks in terms of trade between regions, as opposed to between nation states, it
becomes increasingly clear that many Ricardian trade opportunities throughout Eurasia
remain underdeveloped.

Data on regional per capita income, in and of itself, is insufficient to determine which
opportunities for regional trade are most promising. Regional location quotient, when
combined with per capita income, can be a useful way of shedding light on the extent to which
industrial makeup is the cause of income disparity as opposed to distinctions in the cost of
living or purchasing power parity. For example, some of Russia’s “richest” regions, like
Tyumen and Sakhalin Island, are in remote areas and owe their high incomes in part to the
high cost of living as the incentive pay needed to attract workers. This is very much like the
situation in Alaska. Regions with a particularly high manufacturing location quotient across
different sectors include Kaluga, Vladimir, Leningrad, Tula, Mariy-el, Tver and Chuvashi. Of
these, Kaluga, Vladimir, Tula and located near Moscow whereas Mariy-el and Chuvashi are
Ural regions with substantial ethnic minorities.
141
The Silk Road corridor would serve the
economic interests of these regions very well.

Thus, the traditional paradigm of China as a low wage manufacturing superpower and
Russia as a country with wage levels that are permanently sandwiched between those of
Western Europe and East Asia is beginning to break down. Even if Russia’s economy
recovers, the trajectory of China’s more technologically advanced provinces show that they
are destined to earn higher wages than their Russian or Kazakh counterparts.

72
Part 2: Spatial Analysis Methodology and Findings

3.5 Description of Data Sources

This chapter uses a comprehensive firm-level dataset (RUSLANA) of Russian,
Belarussian and Kazakh manufacturing companies to evaluate how the proposed BRI
corridors dovetail with national development strategies and priorities. Specifically, I use GIS
to evaluate how proximity to proposed BRI corridors serves clusters of different industries
(NACE 2-digit classification), and the extent to which certain industries would be favored
depending on which corridor receives priority funding. My work highlights the industries that
have the potential to produce technologically complex products as exports. Improved freight
transport accessibility through the BRI is important for Russian firms entering export markets
given that the distance of many firms from external markets makes transportation cost and
time in transit a significant hindrance.
142

The investments in Belt and Road Corridors set the stage for related innovations and
supply chain efficiency improvements, which in turn may be less closely tied to product
type, sophistication and destination. In fact, bringing relatively low-tech products to market
within a lower wage country might be more challenging than marketing those same
products to a rich country due to the more price sensitive consumer base. As an example, the
Amazon model of delivery, which heavily relies on air cargo and near instantaneous small
parcel delivery, is grossly inefficient from the perspective of transport costs. It has been
successful due to the relative price insensitivity of the U.S. consumer base and the existence
of substantial cross subsidization.

Golikova et al. note that the ability of Russian firms to innovate was correlated with
their ability to successfully export. The researchers do not, however, specify the role that the
physical location of firms, or their access to freight infrastructure, may play.
143
Given Russia's
size, the proximity of firms to export destinations as well as their proximity to transport
corridors and specific access points such as freight yards, should be regarded as a significant
factor inhibiting firms from entering export markets.

The data used by Golikova et al. come from three primary sources: 1) a commercial
database of all registered Russian firms known as RUSLANA; 2) a panel of interviews with
Russian manufacturing firms; and 3) official statistics from the Russian Federal Statistical
service (ROSSTAT). A European business registry, Bureau Van Dijk, owns the RUSLANA
business database. For this reason, the RUSLANA data are accessible through Bureau Van
Dijk’s online interface known as Orbis.

73

Table 3.5.1 RUSLANA Database Categories

Latitude and longitude data shed light on the ways in which the Belt and Road
corridors are could potentially assist Belarus, Russia and Kazakhstan in bolstering
manufacturing competitiveness and exports. The location of firms relative to the main rail
corridors demonstrate whether improvement in these corridors would materially assist
these firms in broadening their markets or accessing existing markets more efficiently. In
other words, the influence of an improved rail corridor diminishes the further a given firm
is located from the corridor. Figure 3.3.1 shows the location of Russian manufacturing
firms in which a physical operational location is provided. The blue band represents a one-
hundred-kilometer buffer as the scale of distances involved.

1. Industrial classification through the European (NACE Rev 2) system.
2. Revenue (operating) and profit for 2016 and prior years.
3. Production and key products.
4. Latitude/Longitude of the firm’s operational address.
5. Website and email contacts.
6. Operational/Registered address.
7. Latitude and Longitude Coordinates, available primarily for those firms listed by
their operational addresses.

74
Figure 3.5.1: Location of Russian, Kazakh and Belarussian Manufacturing firms in Relation to
Southern and Northern Silk Road Corridors. Source: RUSLANA Database

75

For Belarus and especially Kazakhstan, the Van Dijk data are less complete. While
most firms have data on employment, only a modest percentage have information related
to revenue and profit, and almost none have GPS coordinates. For this reason, I used
geocoding software to determine the location of Belarussian and Kazakh firms.

3.6 Descriptive Statistics

For the Russian Federation, the Bureau Van Dijk business registry contains
information on 10.23 million active firms. Given that a key economic strategy is to improve
the percentage of firms that could export, it is important to identify those firms that could
benefit from the trade infrastructure improvements brought about by the New Silk Road. If
the route that emerged as the main corridor does not materially aid the economic
development strategies of Russia, Kazakhstan and Belarus because it is inaccessible to key
firms, this will greatly weaken their long-term support for the project.

Not all firms are potential exporters, so not all firms are equivalent stakeholders in
the New Silk Road. The principal sectors that would benefit from improved transcontinental
trade corridors would be firms that produce a physical product. For this reason, my analysis
focuses primarily on companies that are involved in some type of manufacturing activity.

The location of some firms may be determined due to co-agglomeration with other
firms related to the production process rather than to direct access to export markets.
Patterns of co-agglomeration are generally not well understood in transition economies due
to less robust data on industrial activity and transport costs.
144
Russian manufacturing firms
are more highly localized, meaning they display more geographic concentration compared to
overall manufacturing than in comparative countries such as Canada. Aleksandrova et al
note that this factor is partially attributable to the legacy of Soviet industrial planning and
find that the pattern of localization within Russia differs by region and industrial
classification, with the most localized industries also most agglomerated.
145
Aleksandrova et
al also find some evidence that high freight transport costs are a key driver of the geographic
concentration of Russian manufacturing firms.

Thus, a large factor in explaining the location of Russian manufacturing firms is their
geographic proximity to other firms and the benefits received from agglomeration.
Nevertheless, given that Russia remains a transition economy, it is prudent for all firms to
consider accessibility to non-traditional domestic and export markets. Firms that can only
serve as intermediaries in a local production processes are more vulnerable to shifts in
demand. For this reason, I consider the accessibility of all firms to potential export-oriented
infrastructure regardless of whether or not they are currently involved in exports.

The extent to which improvements tied to the BRI aid the economy are influenced by
the role played by freight rail. Freight rail plays a very different role by sector depending on
the country. In the United States, freight rail is used to handle heavy industrial products,
hazardous goods, as well as consumer goods that must travel substantial distances. In

76
Europe, freight rail is used far more sparingly due to a lack of capacity and poor shipment
coordination between countries. The modal share of freight rail in France, for example is
only 9.5% despite the high cost of trucking.
146
Even China, which is known to have an
advanced rail system in general, has struggled to boost the share of intermodal containers
handled by rail. Yet, as noted in Table 3.3.3, this is not the case in the former Soviet Union
where rail retains its status as the dominant transportation mode across sectors.

There are 544 thousand active firms classified as primarily engaged in manufacturing in
the RUSLANA database for the Russian Federation, approximately 5% of total listed firms.
Table 3.2.1 shows the distribution of firms by industrial classification. Firm classifications that
are associated with sophisticated manufacturing processes, defined through a rough
concordance of the Harvard Product Complexity Index, are in bold. Firms that produce
products that would be considered good candidates for intermodal (containerized)
transportation are italicized. From the distribution, it is clear that the vast majority of Russia’s
current manufacturing firms are in relatively low-tech sectors, yet many produce products
conducive to intermodal shipping.

Table 3.6.1 shows the distribution of manufacturing firms and revenue by region for
regions with at least 1 percent of total firms. As expected, while Moscow and St. Petersburg are
the largest contributors, 80% of total manufacturing firms are located elsewhere, including
concentrations in the Urals, Siberia and the Far East. Revenue is more concentrated in Moscow
than St. Petersburg considering the number of firms. (See Table 3.6.2) For example, 16.9% of
total manufacturing revenue comes from Moscow, compared to the total percentage of firms
(12.5%), yet the percentages for St. Petersburg are nearly identical for both number of firms
(7.7%) and revenue (7.8%).

77
Table 3.6.1: Russian Firms by NACE 2 Digit Sector

NACE Sector Total Firms
All 544,159
10. Manufacture of food products 79,940
25. Manufacture of fabricated metal products, except machinery and

69,552
16. Manufacture of wood and of products of wood and cork, except
furniture;

63,106
31. Manufacture of furniture 52,975
14. Manufacture of wearing apparel 51,392
23. Manufacture of other non-metallic mineral products 44,078
18. Printing and reproduction of recorded media 28,528
22. Manufacture of rubber and plastic products 26,763
28. Manufacture of machinery and equipment nec 20,413
32. Other manufacturing 20,199
13. Manufacture of textiles 17,034
20. Manufacture of chemicals and chemical products 12,717
26. Manufacture of computer, electronic and optical products 12,079
27. Manufacture of electrical equipment 10,474
11. Manufacture of beverages 7,227
17. Manufacture of paper and paper products 5,450
15. Manufacture of leather and related products 5,150
24. Manufacture of basic metals 4,686
30. Manufacture of other transport equipment 4,685
29. Manufacture of motor vehicles, trailers and semi-trailers 3,641
21. Manufacture of basic pharmaceutical products and
pharmaceutical

2,342
19. Manufacture of coke and refined petroleum products 1,482
12. Manufacture of tobacco products 246

*High tech firms bolded, firms that are candidates for intermodal transportation italicized.

Table 3.6.2: Percentage Breakdown of Total Manufacturing Firms by Region

Region
Percent of
total Firms
Percent
Revenue
by Region
Ratio of
firms to
revenue
Moscow City
12.5 16.2 1.3
Saint Petersburg 7.7 7.8 1.0
Moscow region
6.5 7.9 1.2
Sverdlovsk region 4.2 4.8 1.1

78
Novosibirsk region 3.3 1.2 0.4
Chelyabinsk region 3.1 3.5 1.1
Republic of Tatarstan 3 3.8 1.3
Nizhni Novgorod region 2.7 3.9 1.4
Samara region 2.6 2.8 1.1
Krasnodar Territory 2.6 2.7 1.0
Rostov region 2.3 2.4 1.0
Republic of Bashkortostan 2 2.1 1.1
Perm Territory 1.8 2.2 1.2
Altai Territory 1.8 0.9 0.5
Krasnoyarsk Territory 1.7 1.2 0.7
Vladimir region 1.4 0.9 0.6
Kirov region 1.4 0.4 0.3
Voronezh region 1.3 1.2 0.9
Ivanovo region 1.3 0.4 0.3
Republic of Udmurtia 1.3 0.8 0.6
Yaroslavl region 1.3 1.1 0.8
Kaliningrad region 1.3 1.5 1.2
Saratov region 1.2 1.1 0.9
Irkutsk region 1.2 0.9 0.8
Tula region 1.2 1.2 1.0
Kemerovo region 1.2 1.6 1.3
Omsk region 1.1 0.9 0.8
Tver region 1.1 0.7 0.6
Kaluga region 1.1 2.4 2.2
Tyumen region 1.1 2.3 2.1
Leningrad region 1.1 2.1 1.9
Stavropol Territory 1.1 0.7 0.6

The economic impact of sanctions on the Russian economy, along with low oil prices has
had a severe impact on Russian manufacturing firms. Because very few firms export, a decline
in domestic consumer demand has a severe impact on firm revenue. As shown in Figure 3.6.2 a
large number of manufacturing firms suffered more than a 50% drop in total revenue between
2009-2016, despite the fact that 2009 was the low point of the global economy. Boosting the
share of firms capable of accessing foreign markets could help to mitigate future downturns.

79

Figure 3.6.2 Change in Russian Manufacturing Firm Revenue (2009-2016)
Source: RUSLANA database

As can be seen in Table 3.6.3, there is wide variation between the prevalence of
industries defined here as sophisticated versus non-sophisticated. Interestingly, regions such
as Chelyabinsk, Kaluga and Samara which are firmly in the Russian “Rust Belt” continue to
maintain a high percentage of total revenue dedicated to sophisticated manufacturing. In fact,
the percentage dedicated to sophisticated industries in these regions is higher than that of
Moscow or Saint Petersburg. Several regions in the Urals which could become key contributors
to Silk Road trade also have an elevated percentage of sophisticated industries.

80
Table 3.6.3: Breakdown of Top 25 Regions by Percent Sophisticated Industry
Source: RUSLANA Database

Region in
country
Percentage
of firms
Number
of Firms
Revenue by
Region
Sophisticated
Industries
Non-
Sophisticated
Industries
Percent
Sophisticated
Percent
Unsophisticated
Kaluga region 1.10% 1398 $12,739,933 $10,017,967 $2,721,966 78.60% 21.40%
Chelyabinsk
region 3.10% 3997 $19,074,536 $14,631,980 $4,442,556 76.70% 23.30%
Tula region 1.20% 1504 $6,348,029 $4,850,636 $1,497,393 76.40% 23.60%
Karachaevo-
Cherkessian
Republic 0.10% 181 $603,538 $453,516 $150,022 75.10% 24.90%
Chechen
Republic 0.10% 82 $117,211 $87,079 $30,132 74.30% 25.70%
Kurgan region 0.40% 501 $1,030,205 $756,820 $273,385 73.50% 26.50%
Chuvashi
Republic 1.00% 1281 $2,521,022 $1,852,023 $668,999 73.50% 26.50%
Samara region 2.60% 3338 $15,124,080 $10,997,047 $4,127,033 72.70% 27.30%
Republic of
Udmurtia 1.30% 1689 $4,460,699 $3,229,219 $1,231,480 72.40% 27.60%
Yaroslavl
region 1.30% 1681 $5,727,075 $4,107,413 $1,619,662 71.70% 28.30%
Ulyanovsk
region 1.00% 1330 $2,944,902 $2,022,686 $922,216 68.70% 31.30%
Novgorod
region 0.50% 607 $3,574,868 $2,426,329 $1,148,539 67.90% 32.10%
Zabaykalsky
Territory 0.20% 269 $387,682 $255,932 $131,750 66.00% 34.00%
Stavropol
Territory 1.10% 1378 $3,866,300 $2,442,438 $1,423,862 63.20% 36.80%
Republic of
Tatarstan 3.00% 3909 $20,558,817 $12,872,154 $7,686,663 62.60% 37.40%
Tver region 1.10% 1408 $3,739,560 $2,341,404 $1,398,156 62.60% 37.40%
Saint
Petersburg 7.70% 10053 $42,242,164 $26,313,538 $15,928,626 62.30% 37.70%
Jewish
Autonomous
District 0.10% 87 $91,758 $56,842 $34,916 61.90% 38.10%
Bryansk region 0.70% 887 $2,451,348 $1,514,300 $937,048 61.80% 38.20%
Orel region 0.50% 644 $1,534,199 $943,731 $590,468 61.50% 38.50%
Vladimir region 1.40% 1837 $5,024,042 $3,067,349 $1,956,693 61.10% 38.90%
Moscow region 6.50% 8375 $42,529,395 $25,825,463 $16,703,932 60.70% 39.30%
Moscow 12.50% 16181 $87,374,490 $52,271,548 $35,102,942 59.80% 40.20%
Kabardino-
Balkarian
Republic 0.30% 361 $1,159,509 $693,788 $465,721 59.80% 40.20%
Smolensk
region 0.70% 940 $2,717,735 $1,598,965 $1,118,770 58.80% 41.20%

81
Russia has a large number of firms dedicated to food production, metallurgy, and
mineral products given its natural resource endowments. There are also, however, many firms
dedicated to light industry, such as furniture, apparel and electrical equipment. These are
consumer goods not typically associated with Russia’s heavy industrial economy. This
demonstrates the dual nature of Russia’s economy in which domestic production remains well
diversified while international production is narrower and concentrated in less sophisticated
industries.

Outside observers understand the Russian economy in terms of its export profile, which
is dominated by oil, natural gas and other raw or semi-finished products. For example, the
Harvard Economic Complexity Index, an aggregation of the complexity of exported products,
currently ranks Russia’s economy 42
nd
out of 214 total economies (0.467258), Kazakhstan’s at
68
th
(-0.140565), and Belarus’ 34
th
(0.723198). This compares with China’s ranking of 26
th

(0.911251) and the U.S.’s ranking of 9
th
(1.58101).
147

The data on firm composition demonstrate that Russia’s domestic manufacturing is far
more diversified than its trading economy. Haussmann and Hidalgo argue that countries make
products that they do not export primarily because these products are of lower quality than
competitor products. This is certainly part of the explanation, yet the attractiveness of Russian,
Kazakh or Belarussian products on world markets also depends on the speed and reliability of
supply chains. For example, it is doubtful that the Belarussian economy is significantly more
advanced than the Russian economy as the complexity rankings suggest. Belarus’ comparative
proximity to Europe, however, may allow it to export products more readily than Russia. In
addition, Russian imports of Belarus’ small volume of manufactured goods artificially elevates
the country’s purported complexity.
148

Dominance of Rail in the Eurasian Trade Space
Another key characteristic with a significant impact on how improvements to rail impact
the economy is the high concentration of existing assets and the close co-location of
manufacturing firms to railroads. This characteristic holds for Russian, Belarussian and Kazakh
economies. The Soviet Union had a notoriously underdeveloped highway network, which was
in line with very low rates of auto ownership when compared to the U.S. or other developed
countries. In the years since the fall of the Soviet Union, the rate of auto ownership has
substantially increased, and Russia has poured money into highway construction, and yet the
country still faces a structural deficit that is not easy to erase. In the latest iteration of the
World Economic Forum’s Global Competitiveness Report, the overall quality of Russia’s Road
network was rated at 2.9 out of 7, whereas its rail network was rated at 4.5 out of 7 (compared
to 5.5 for Germany).
149

In terms of ton-kilometers, the share transported by rail in 2016
(2,342.6 billion ton kilometers) still roughly ten times that of trucking (234.5 billion ton
kilometers).
150

The continued co-location of manufacturing firms with rail infrastructure in Russia can
be explained by three factors: 1) the legacy of a deliberate Soviet era policy to collocate
industry with rail; 2) the high correlation of population density with rail density; and, 3) the
rational decision by firms that have formed since the fall of the Soviet Union to avoid

82
overreliance on a low-quality highway network. Through GIS, I demonstrate the extent to
which this Soviet legacy continues to steer the overall pattern of freight movement.

3.7 Spatial Analysis Findings

The patterns of manufacturing firm locations demonstrate that the overwhelming
majority of Russian firms are located very close to one or more rail lines. By using a GIS
database of the entire aboveground Russian rail network in correlation with all
manufacturing firms, one finds that the mean distance from all firms to the nearest rail line to
be only 7.7 km. In total, 43% of Russian firms listed in the RUSLANA database are located
within one kilometer of at least one rail line.

Given the ubiquity of the rail network in Russia, one can learn only limited
information from comparisons of firm distance to the closest rail asset. Alternatively, the
distance can be measured to the closest rail yard. While new yards can be constructed
wherever a corridor exists, the current location of yards shows where corridors can be
accessed in the near term.

The national rail monopoly RZD controls almost all freight yards. Russia has a dense
network of 542 freight terminals responsible for handling all cargo types.
151
Due to the large
number of terminals, most Russian firms have ready access to one or more rail yards. Based
on median distance, the average Russian manufacturing firm is located only 5.3 km from the
closest rail yard. While not every yard can handle every type of cargo, this nevertheless
shows a remarkable degree of accessibility for most manufacturing firms. In terms of the
larger question, it means that improvements to the Russian rail infrastructure could directly
benefit most manufacturing firms. These firms should be regarded as stakeholders in rail
investment decisions, even if some do not currently rely on rail shipments for current
deliveries.

83

Figure 3.7.1: Russian and Belarussian Container Terminals (green and purple points) in Relation
to Manufacturing Firms and BRI Rail Corridors
Source: RZD, RUSLANA, Belarussian Railways

Out of 29,269 firms, 93% or 27,108 were within 50 km of at least one rail terminal
whereas 71% are within 10 km of at least one terminal. Given how China is concerned
primarily with containerized shipments, I further restricted the sample to terminals that
were capable of handling containerized cargo. This limited the number of terminals to 278
total facilities. Even with this restriction, the vast majority of manufacturing firms are
accessible to one or more container terminals. Substantial endogeneity exists in the location
of firms in relation to rail terminals due to the legacy of Soviet industrial planning and the
before mentioned poor roadway quality. Figure 3.7.2 shows the average distance of
manufacturing firms to the nearest rail terminal capable of handling intermodal cargo.

84

Figure 3.7.2: Average Distance of Russian Manufacturing Firms to Nearest Container Terminal in
Kilometers

The average distance to intermodal terminals varies by industry type. Table 3.7.1
shows the breakdown in Haversine distance by industrial classification. The average distance
for all firms is 30 km. When examined through the lens of complex and non-complex
industries, the non-complex industries are located, on average, 67% further in terms of
Haversine distance from the nearest intermodal terminal compared to complex industries (24
vs 40 km). At first glance, the difference of 16 km may not seem significant. However, poor
road quality and low road density in some regions mean that the effective distance separating
firms from terminals is actually quite substantial. Again, because most firms of all
classifications are concentrated in cities, the mean is impacted by a modest number of
producers that are located in remote regions whose economies, like Alaska, are supported via
air cargo as opposed to truck or rail. When these remote regions in the Russian Far North are
removed from the sample, the mean distance falls from 30 to 24 km. The average for non-
complex industries falls to 29 km and the average for complex industries falls to 21 km. Thus,
with remote regions removed from the sample, firms representing non-sophisticated
0
1000
2000
3000
4000
5000
6000
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
95
100
More
Number of Firms
Haversine Distance to Nearest RZD Container Terminal
Frequency

85
industries are 39% further from intermodal terminals than ones representing sophisticated
industries.

Table 3.7.1: Average Distance to Closest RZD Container Terminal by Industry Classification

NACE Industry
Average
Distance from
Closest
Intermodal
Rail Terminal
(km)
10 55
11 46
12 30
13 23
14 28
15 28
16 41
17 22
18 35
19 44
20 24
21 16
22 24
23 28
24 21
25 24
26 20
27 18
28 21
29 29
30 24
31 23
32 31
Sophisticated Industries
Average 24
Non-Sophisticated
Industries Average 40

Simply having access to rail does not mean that firms actually use rail. In addition, the
supply chains of many manufacturers require shipments from the factory to first move to a
warehouse or distribution center for consolidation and packaging before being placed on rail.
Warehouses, discussed in the next section, constitute another supporting element of freight
infrastructure that is necessary for an effective supply chain to emerge.

86
3.8 Warehouse Infrastructure

To recap, there are three geographic elements contributing to Russia’s potential
ability to benefit from infrastructural improvements associated with the New Silk Road: 1)
manufacturing firms, i.e. the ultimate generators of freight; 2) rail corridors that determine
where freight can be moved; and, 3) rail yards which serve as intermediaries and freight
origins. Warehouses serve as another fixed infrastructure that determine where and how
firms interact with the rail system and can contribute to overall flows along the Silk Road
corridors.

Warehouses that are licensed to engage in international trade, even if not bonded, must
register with the Russian Ministry of Customs. The ministry publishes an inventory of certified
temporary storage and bonded warehouses on its website.
152
In total, 653 warehouses for
temporary storage were registered as of June 2018. The ministry’s registry of customs bonded
warehouses includes not only those in Russia but facilities throughout the Eurasian Economic
Union that are certified to do business with Russia. The registry of bonded warehouses includes
347 facilities representing 9.5 million square meters of storage space. Of these, 82 are located in
Kazakhstan, 37 in Belarus and 12 in Armenia.

153

In addition, the Russian Federation
constructed or announced several “dry ports,” clusters of warehouses typically built around
key industries or anchor clients with multimodal freight access. USESCAPE lists these facilities:
Beliy Rast (Moscow), Doskino (Nizhniy Novgorod), and “Kleshchiha” (Novosibirsk), Ussuriysk,
Yekaterinburg.
154
Many of these dry ports are codified in Annex A of the UNESCAP
Intergovernmental Agreement on Dry Ports.
155

A spatial analysis of the relation of warehouse locations to manufacturing firms finds
that, once again, the average Haversine distance between firms and warehouses is small. Figure
3.8.1 shows that there is an average distance of 21 km separating manufacturing firms from the
nearest warehouse facility. This average is skewed by a few manufacturers in remote locations.
The median distance is a mere five kilometers. One can therefore conclude that the Russian’s
network of warehouses is quite extensive and should not impede firms seeking to export. Thus,
if rail service speed and reliability were to increase, the warehouse network would be a strong
advantage for ensuring that manufacturers can capitalize on these benefits.

87
Figure 3.8.1: Distance of Manufacturing Firms to Nearest Warehouse (Kilometers)

Warehouses are classified by the Russian Customs Ministry as open or closed. An open
warehouse refers to a general use warehouse that any customer can use, whereas a closed
warehouse is restricted to specific customers, i.e. a private warehouse. Of the total, 261
warehouses are classified as closed while the remainder are open. The ministry database also
includes data on the type of transport accessibility each warehouse can handle. In total, 239
warehouses have direct rail access, 584 have truck access and 64 have air cargo facilities on
site. The total is higher than the number of warehouses due to the fact that a warehouse can be
equipped to handle more than one type of transport.

0
2000
4000
6000
8000
10000
12000
14000
5
10
15
20
25
30
35
40
45
50
55
56
60
70
75
80
85
90
95
100
More
Number of Firms
Haversine Distance (km) from Nearest Warehouse
Frequency

88
Figure 3.8.2: Illustration of a Multimodal Warehousing Complex in the Komi Republic
Source: Yandex.ru

Figure 3.8.3 illustrates an example of warehouses by size for the city of Nizhny
Novgorod. While the network of warehouses is extensive, the average size of the warehouses is
small with a median size of 1,200 sq meters. The principal warehouse investment strategy
should therefore be to upgrade the size and technology of existing warehouses to capitalize on
scale economies.

89

Figure 3.8.3: Illustration of Nizhny Novgorod Warehouses by Size (square meters)

When compared to other elements of freight infrastructure, warehouses can be
constructed quickly. For this reason, the pattern of new warehouse construction may be seen
as a leading indicator of how the freight sector is responding to economic trends. As shown in
figure 3.8.4, the customs database of warehouses shows the year of registration, thereby
allowing an analysis of trends over time. It shows that despite the general poor performance of
the Russian economy in recent years, warehouse construction has been strong.

The average bonded warehouse in the Eurasian Union, tracked by the Russian customs
ministry has been registered for 5.3 years. A total of 62 bonded warehouses were registered
within the last 12 months. For temporary storage warehouses (Реестр владельцев складов
временного хранения), the average time since registration is only 2.6 years, showing how a
industry in flux can respond to economic trends. One may therefore look to patterns of
warehouse construction to see how the economies of Eurasian Economic Union are
responding to the New Silk Road’s economic changes. Unlike the rail network, which has
expanded largely based upon long-term infrastructure plans established prior to the
announcement of One Belt One Road, warehouses built since 2013 could have plausibly been
constructed based on anticipated demand from increased transcontinental trade with Asia.

90
Trends in warehouse construction or demolition should continue to be tracked as
trade on Eurasian corridors grows. Some of the larger warehousing facilities currently under
construction or being planned are described on the site “Reconnecting Asia” produced by the
Center for Strategic and International Studies.
156
For example, a new logistics center in
Aktobe, Kazakhstan explicitly cites the facility’s intended role to support the Western Europe-
Western China route.
157

Figure 3.8.4: Russian Temporary Storage and Bonded Warehouses by Year of Registration
Source: Russian Customs Ministry

3.9 Workers in Proximity to Corridors

Given the variation in the road network and topography of Russia, there is no definitive
definition of how close a firm must be to a rail line to be considered accessible. For example, a
200 km buffer around the Trans-Siberian Corridor captures 15,555 firms within its area of
influence. The degree of accessibility for firms along the route depends not only on the extent
of the road network, but also on topography and season. For example, the percentage of firms
that could readily access the rail line in winter would be smaller than in summer.

Table 3.5.1 compares worker totals within the 200 km buffer zone of the two competing
corridors. It illustrates the extent to which more Russian workers are captured within the area
of influence of the Trans-Siberian Corridor as opposed to the Trans-Kazakh Corridor. For
Russia, improvements to the Trans-Siberian Corridor would more effectively serve the needs of
domestic freight stakeholders. Yet, if this corridor becomes the dominant option, it
disadvantages China’s priority provinces such as the Xinjiang Uighur Autonomous Region. A
Siberian or Mongolian route would also cut Kazakhstan out of the loop and stymie its attempts
to emerge as a logistics hub. This does not necessarily mean that Russia will act to block China’s
0
50
100
150
200
250
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Bonded Warehouses Temporary Storage

91
and Kazakhstan’s attempts to make the Trans-Kazakh Corridor the default routing option,
however it does suggest that an mutual agreement to prioritize the Trans-Kazakh corridor may
generate pushback from the Russian Far East.

Table 3.9.1: Impacted workers by NACE Industry within the Trans-Siberian and Trans-Kazakh
Corridors

NACE2 Manufacturing Categories
Total
Employees
Trans-Sib
Total
Employees
Trans-
Kazakh Difference
10 food products 321,946 258708 -63,238
11 beverages 78,727 68411 -10,316
12 tobacco products 538 538 0
13 Textiles 33,767 31837 -1,930
14 wearing apparel 38,455 34096 -4,359
15 leather and related products 23,340 22133 -1,207
16
wood and of products of wood and
cork 49,160 39667 -9,493
17 paper and paper products 28,569 24628 -3,941
18 Printing and recorded media 57,240 46748 -10,492
19
coke and refined petroleum
products 33,433 13782 -19,651
20 chemicals and chemical products 147,983 119962 -28,021
21 basic pharmaceutical products 50,017 46363 -3,654
22 rubber and plastic products 109,538 94979 -14,559
23
other non-metallic mineral
products 175,920 148249 -27,671
24 basic metals 177,756 123433 -54,323
25 fabricated metal products 204,011 176596 -27,415
26
computer, electronic and optical
products 101,252 86349 -14,903
27 electrical equipment 115,009 101038 -13,971
28 machinery and equipment nec 155,017 134562 -20,455
29
motor vehicles, trailers and
semi-trailers 66,489 60987 -5,502
30 other transport equipment 143,271 119606 -23,665
31 furniture 57,801 54322 -3,479
32 Other manufacturing 51,110 49251 -1,859

2,220,349 1,856,245 -364,104

92

Agricultural and Mining Firms

While this chapter primarily focuses on manufacturing firms due to their direct
relationship to intermodal transportation and economic upgrading, agricultural and mining
constitute a significant share of freight movement in Russia. Therefore, agricultural and mining
firms are also stakeholders. Of the 7550 firms classified as agricultural and mining in the
RUSLANA database with an operational address, 2741 (36%) are within a 200 km buffer of the
trans-Siberian rail corridor whereas 1738 (23%) are within 200 km of the Russian portion of
the Trans-Kazakh corridor. In general, agricultural and mining firms can be expected to be less
directly impacted by congestion on the routes as their shipments are generally less time
sensitive. The exception to this rule would be producers of perishable foods. In total there are
2119 firms that are potential producers of perishable goods based on their industrial
classification. These firms are expected to have demands on the freight system to those of time
sensitive manufacturers of containerized products. Of the total, 974 producers of perishable
goods are within a 200 KM buffer of the trans-Siberian and 723 are within 200 KM of the
Russian portion of the Trans-Kazakh route.

Whereas time in transit is only a core concern for a minority of agricultural and mining
firms. Shippers of low margin commodities will be very concerned if investments connected to
BRI rail improvements are recovered through raising rates. For example, if RZD were to
attempt to recover expenditures on the controversial Moscow-Kazan high speed rail project
(discussed in detail in chapter 4) by increasing transportation rates on low margin bulk
shippers, this might have a significant impact on the Russian agricultural sector, driving up
prices not only for exports but also for domestic consumption.

3.10 Belarus Firm Distribution

Belarus, like Russia, has maintained a substantial manufacturing sector despite low
export penetration in non-CIS markets. Belarus is divided into six regions, or “oblasts.” The
capital and primate city of Minsk serves as a seventh oblast. The country is further subdivided
divided into 118 administrative regions, or “raions.”

The following breakdown shows total manufacturing employment at the oblast level.
Minsk clearly dominates. Another distinction is the degree to which sophisticated industries
are concentrated in Minsk. The Orbis dataset does not differentiate registered from operational
addresses, unlike in Russia. Thus, it is likely that the Minsk total reflects some firms that are
officially registered in the capital but have operational locations elsewhere. One can see the
percentage of industrial employment in Minsk trends far more heavily towards sophisticated
industries than in any other Belarussian region due to a high volume of workers in the field of
motor vehicle construction (NACE 29). This finding helps to explain the Belarussian
government’s enthusiasm for the flagship Great Stone Industrial park currently under
construction near Minsk with Chinese funding. Given how the Minsk region is already home to
substantial clusters of sophisticated manufacturing employment, this is the most logical
location for the new industrial park.

93
One should also note the low percentage of employees in the Brest region employed in
sophisticated industries. This region currently serves as the principle gateway for Asian cargo
crossing into Europe. Given that the Brest border crossing serves as a major bottleneck for
trans-Eurasian cargo due to the change of gauge from the Russian to standard gauge, it would
be a logical location for value-added services. Particularly notable in Belarus are large
concentrations of employment in NACE categories 26 (computer, electronic and optical
products) and 28 (Machinery and Equipment). Figure 3.10.1 shows the comparative
percentage on a map of Belarussian regions.

Table 3.10.1: Breakdown of Belarus Employment by Region by Sophisticated and Unsophisticated
Industry

Employment
by Region
Sophisticated
Industries
Unsophisticated
Industries
Percent
Sophisticated
Percent
Unsophisticated
Vitebskaya 99937 33316 66621 33.3% 66.7%
Gomel'skaya 140921 60275 80646 42.8% 57.2%
Minskaya 111095 47432 63663 42.7% 57.3%
Brestskaya 109566 40531 69035 37.0% 63.0%
Minsk 420747 302440 118307 71.9% 28.1%
Mogilevskaya 103181 52171 51010 50.6% 49.4%
Grodnenskaya 117097 42530 74567 36.3% 63.7%
Total 1102544 578695 523849 52.5% 47.5%

94
Figure 3.10.1: Percentage of Manufacturing Employment in Sophisticated Industries by Oblast
(Minsk City and Minsk Region Combined).
Full Breakdown by NACE industry classification available in Appendix

Relationship Between Belarussian Firm Location and Container Terminals

A total of 2,881 of the 4,654 manufacturing firms in Belarus have enough data for
geocoding. These firms are the firms classified as medium or large by RUSLANA . A proximity
analysis of these firms in relation to the 25 rail terminals capable of handling containerized
product shows that the average distance for all firms to the nearest container terminal is 27 km
when measured through Haversine distance. The median distance is 10 km. The distribution of
distances separating firms from the closest intermodal terminal has a similar pattern to that of
Russian firms. Though my analysis is based on a smaller sample size, Belarus’ dense rail
network means that manufacturing firms are well positioned to benefit from any
improvements in rail service brought about through Chinese rail investments.

95
Figure 3.10.2: Haversine Distance of Belarussian Manufacturing Firms to Nearest Container
Terminal

3.11 Kazakhstan Firm Distribution

Kazakhstan has 20 thousand registered manufacturing firms of all classifications. As can
be seen in the following map, a substantial percentage are located a significant distance from
the principle rail corridor currently used for Eurasian cargoes. There are major concentrations
of firms in South Kazakhstan.

0
100
200
300
400
500
600
700
800
900
Number of Firms
Haversine Distance from Nearest Container Terminal (km)

96

The following is a breakdown of Kazakhstan’s firms by region, with an analogous
dichotomy of firms that are in pre-defined sophisticated and unsophisticated industries. Table
3.11.1 refers to the distribution of firms by type, but this only refers to the number of firms. It
indicates that North Kazakhstan, an agrarian region with a significant Russian speaking
population, has the lowest percentage of firms in sophisticated industries, whereas the capital
of Astana has the highest.

Table 3.11.1: Kazakh Breakdown of Firms by Region

Sophisticated Unsophisticated
Total
Firms
Almaty 54% 46% 1556
Aqtobe 54% 46% 736
Astana 56% 44% 2307
Kostanay 39% 61% 791
North-
Kazakhstan
province
39% 61% 523
City of
Almaty
45% 55% 5746
South-
Kazakhstan
province
41% 59% 2015
Atyrau 52% 48% 380
Zhambyl 44% 56% 648
East-
Kazakhstan
province
42% 58% 1426
Akmola 45% 55% 737
West-
Kazakhstan
province
51% 49% 455
Pavlodar 53% 47% 1004
Kyzylorda 40% 60% 353
Karagandy 54% 46% 1892
Mangystau 57% 43% 568
Total 48% 52% 21137

97
An analysis of total employment by industry reveals greater distinctions than when
examining the number of firms. The regions of Karaganda and South Kazakhstan have the
lowest concentration of employment in sophisticated industries at only 20% and 22%,
respectively, whereas the region of Atryau has the highest percent of sophisticated industry
employment at 60%, higher than that of the national capital of Astana at 54%.

Most manufacturing sectors classified as sophisticated are not major sources of
employment in Kazakhstan. Employment in these industries is far lower on average when
compared to that of Russia and Belarus. By far, the largest single source of manufacturing
employment is in metal production (26% of total employment). Transport equipment, which
constitutes a significant percentage of total manufacturing employment in some other post-
Soviet states, is not a major source of jobs in Kazakhstan. Figure 3.11.2 shows the percent of
manufacturing workers in sophisticated industries by province.

This relative lack of sophisticated manufacturing employment is potentially problematic
for Kazakhstan as it attempts to quantify the net development benefits of the Silk Road rail
corridor for its overall development strategy. The relative paucity of workers in sophisticated
industries means that there are comparatively fewer Kazakh workers who stand to directly
benefit from an improvement in intermodal performance.

Figure 3.11.2: Percent of Workers in Sophisticated Industries

(full industry breakdown available in appendix)

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3.12 Conclusion

This chapter illustrates how closely the corridors that are envisioned to play a leading
role in the new Silk Road correspond with the existing economic geography and economic
development strategies of key countries along the route. Due to data availability, the majority of
the analysis focuses on Russia. This is also appropriate given that Russia is likely to require the
most evidence regarding the economic benefits of the overall endeavor to commit.

The logic of focusing on the location of manufacturing firms derives from the fact that
these are the stakeholders that stand to benefit most directly from improvements to
intermodal rail transportation. If the corridor does not benefit manufacturers, then its primary
appeal is as a source of transit rents. Yet, given that these are economies that already heavily
rely on resource rents as a source of governmental revenue, transit rents alone are unlikely to
serve as a source of long-term economic growth.

The specific diagnosis of economic development experts in Russia is that their country’s
slow and uneven economic growth is largely attributable to the lack of economic upgrading in
the manufacturing economy. This refers to the movement from producing and exporting
products with low embedded complexity with respect to the requisite capital and skill
requirements to the production of more complex products. This thesis is supported by
international development economists such as Ricardo Hausmann and Dani Rodrik and is the
essential insight behind the Harvard Economic Complexity Index (ECI) and associated Product
Complexity Index (PCI).

The weakness of using the ECI and PCI to assess the economic development potential of
the post-Soviet states is that these former closed economies still have a very narrow export
portfolio. Thus, the indices provide us with a window into a small, non-representative sample
of the overall manufacturing economy. An examination of the export portfolio alone gives the
impression that these are economies dominated by primary industry. However, my broader
analysis of domestic manufacturing finds that these countries have maintained a well-
diversified manufacturing portfolio, particularly for Russia and Belarus, even while maintaining
a narrow export portfolio.

The disconnect between the products produced for the domestic market and products
produced for export can be explained by a number of putative factors. The first and most
obvious is that these products are low quality and therefore uncompetitive for the main
potential export markets of Europe and the United States. Even if products are of acceptable
quality, it is possible that higher labor rates in the former middle-income former Soviet states
lead to a labor cost disadvantage that precludes their export to East Asia. Finally, it is theorized
that a lack of efficient transport connectivity places manufacturers in these countries from
accessing foreign markets in a competitive fashion. All three of these factors may play a
simultaneous role in curtailing the growth of manufactured exports.

I find some evidence that low product quality plays a role in holding down exports.
Specifically, research by the Moscow Higher School of Economics shows that Russian
manufacturing includes a high percentage of “technologically unchanged” and a relatively low
percentage of “innovative” products across the board. Yet, this brings us back to the chicken

99
and egg problem. Do firms not export because they are incapable of upgrading their product
sophistication, or does product sophistication stagnate because these firms do not export?

It becomes increasingly clear that if transport and logistics costs are so high that firms
are strongly disincentivized from entering export markets, the question of whether they would
be capable of improving product sophistication under theoretical exposure to international
market feedback becomes moot. Therefore, while infrastructure investments aimed at lowering
transport costs and improving logistics efficiency would not guarantee that these
manufacturers will improve technological sophistication, the continuation of poor logistics
performance would almost certainly lead to continued technological stagnation.

Finally, I challenge the idea that improvements in intermodal efficiency would have no
benefit in bolstering Asian-Eurasian trade based on comparatively higher labor costs in the
former Soviet Union. Given the sharp rise of Chinese per capita GDP and the relative stagnation
of Russian, Kazakh and Belarussian GDP, one can no longer say that labor rates place these
countries at a disadvantage. This is particularly true if one considers regional comparisons in
which poorer regions have per capita GDP significantly below upper or even middle-class
Chinese provinces. Belarus, the country in our story which has engaged in the most significant
joint economic planning with China, now has a GDP per capita that is only half that of China
whereas as recently as 2008 its GDP per capita was almost double. This sea change makes
potential supply chains in which Belarussian labor would be used to add value to semi-finished
Chinese goods prior to European export a logical economic strategy. The same logic would hold
true for poorer Russian and Kazakh regions.

The vast geographic space of Eurasian manufacturers makes broad generalizations such
as the impact of the rail corridor improvements on “Russia” or even on “Siberia,” for example,
sound facile. In reality, manufacturing firms that cannot access the corridor within a relatively
short trucking distance cannot benefit. For this reason, I evaluate the relation of firms of
different industrial classifications to specific access points along the corridor according to three
dimensions. First, the absolute proximity of all manufacturing firms to key corridors, second,
the difference in accessibility of sophisticated industries (those capable of manufacturing
economically complex products) compared to manufacturers of unsophisticated products, and
third the accessibility of firms in priority development regions such as the Russian Far East.

As mentioned before, not all “sophisticated” manufacturers as designated by their
industrial classification actually manufacture sophisticated products. The rationale for dividing
firms into the sophisticated/unsophisticated dichotomy is the understanding that
“sophisticated” industries have the greatest upside potential to improve their product
complexity under the right conditions. Given this lack of objective data on which product
quality associated with individual producers, one can only make rough associations between
the products that score highly on the Harvard Product Complexity Index and their associated
industries by 2-digit NACE classification. Yet even if there were a full accounting of all products
that was in concordance with the PCI, this would not convincingly show that these products
were complex. For example, almost all Belarussian manufactured exports are purchased by
Russia in barter for subsidized oil and natural gas. This is a trading relationship based on the
maintenance of a political alliance and is not evidence that these products are competitive on
international markets. Thus, even an examination of a country’s export basket is sometimes
insufficient to understand which products are truly competitive.

100

Russian Results

The geographic distribution of Russian manufacturing firms and revenue was analyzed
through the RUSLANA business registry. In addition to the obvious clusters surrounding
Moscow and St. Petersburg, the largest concentrations of manufacturing activity were found in
Sverdlovsk, Nizhny Novgorod, Tatarstan and Chelyabinsk.

Chelyabinsk, Kaluga and Samara regions have particularly high percentages of
sophisticated industry whereas Siberian regions such as Omsk and Irkutsk have significant
overall manufacturing sectors concentrated in unsophisticated industries. Thus, while
manufacturing is omnipresent in Russia, only certain regions have clusters of the types of
industries that would significantly benefit from improved intermodal transportation.

Even if the right industrial clusters were located in proximity to the proposed corridors,
this is not sufficient to conclude that they can benefit. In addition to being physically close to a
proposed Silk Road corridor, they also need to be close to an access point – i.e. a rail terminal
capable of handling intermodal cargo. For this reason, I first evaluated the percentage of firms
of different industries that were within an acceptable buffer, based on Haversine (Euclidean)
distance from the two main proposed rail corridors (the Trans-Kazakh and Trans-Siberian).
The analysis determined that the Trans-Siberian corridor provided superior accessibility to
Russian manufacturers across the board and in particular for certain industries. This finding
suggests that Russia’s overall economic development strategy would be aided more if the
Trans-Siberian option becomes the dominant option for trans-Eurasian cargoes. This scenario
would lead to greater investment in rail and terminal infrastructure along the route that would
produce economies of scope for existing and future Siberian shippers.

The next factor evaluated was rail accessibility. Even knowing how far industries of
different classifications were from the rail corridor is insufficient to understand how readily
they can access the corridor. Unlike a highway, shippers can only load intermodal cargo via
dedicated freight yards. For this reason, I examined the distance of firms to the nearest freight
terminal that was capable of handling containerized cargo. Data from RZD, the Russian rail
monopoly, shows that sophisticated industries were, on average, closer to intermodal terminals
than non-sophisticated industries. Pharmaceutical products (NACE 21) were found to be the
closest on average to an intermodal terminal whereas producers of foodstuffs (NACE 10) were
the furthest away.

In addition to rail terminals, I also evaluated the proximity of firms to warehouses that
are registered to handle international trade. Warehouses serve as intermediate freight
infrastructure and are essential for efficient supply chains. As is the case with intermodal
terminals, there is relatively little information on the quality of warehousing infrastructure
other than size in square meters. The data shows that, like intermodal terminals, Russia has a
large network of warehousing facilities and the vast majority of manufacturing firms are
located within 10 km from at least one warehouse that is registered with the Russian Ministry
of Customs. The data from the customs ministry also reveals that a significant share of Russia’s
warehouses have been registered in the last few years.

101

Kazakh Results

RUSLANA data for Kazakhstan, though somewhat less complete than that of Russia,
nevertheless provides essential insights into the concentrations of key industries. Like Russia,
Kazakhstan has a significant manufacturing sector, yet a higher percentage of firms are in non-
complex, unsophisticated industries. This suggests that Kazakh firms may see few direct
advantages from improved intermodal corridors. On the other hand, the principle rail corridor
runs directly through Kazakhstan’s fast-growing capital of Astana and is also in proximity to its
largest industrial city – Almaty.

Kazakhstan’s poorest province, South Kazakhstan, has a surprisingly high number of
manufacturing firms, yet they are far removed from the principle Trans-Eurasian corridor.
Thus, from an interregional equity standpoint, the proposed intermodal corridor does little to
aid Kazakhstan’s poorest province. These firms, however, would be well served by the
alternative TRACECA a corridor, described in Chapter 2, that links Kazakhstan to Turkey via the
Caspian Sea.

Belarussian Results

The results show that the small state of Belarus has perhaps the most to gain from active
participation in the Silk Road Corridor as currently envisioned. Regardless of where the
corridors originates, all (rail)roads lead to Minsk. Compared to Russia and Kazakhstan, Belarus
is resource poor. In addition, its authoritarian leader has intentionally prevented the
dismantling of the Soviet economic model. These factors together mean that manufacturing in
Belarus plays a leading role in the economy. In addition, given that Belarussian manufacturing
is less closely tied to primary industry, a higher percentage of firms are classified in more
sophisticated industries. Belarus’ small size and dense network of rail terminals means that
almost all manufacturing firms are within short trucking distance of less than 15 km to one or
more intermodal terminals.

The uniquely favorable economic geography of Belarus helps to explain China’s
enthusiasm for investment in Belarussian trade infrastructure, featured most prominently in
the massive Great Stone Industrial Park. The greatest source of uncertainty comes from the lack
of institutional transparency in Belarus, detailed in the next chapter.

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Chapter 4: Political and Institutional Constraints to the Eurasian BRI

This chapter examines the political and institutional factors that may further complicate
the real-world realization of transcontinental rail corridors linking China to Europe. China’s BRI
has been embraced to various degrees by the countries of Eurasia. Yet, given China’s economic
and military power, no country will be naïve to the associated risks of giving China too much
leverage over its economic destiny. Even when a country’s leaders are willing to fully engage
with China on the BRI, domestic concerns such as flawed institutional structures or anti-
Chinese sentiments amongst the population may constrain these ambitions.

The institutional differences that are most concerning include a lack of transparency in
rate setting for rail cargo, procedural distinctions in transportation planning processes, along
with the persistence of corruption which can lead to cost overruns and destroy trust. None of
these factors are necessarily fatal, however they strengthen the need to establish a
collaborative structure that is consistent with the economic development strategies of each
country, and palatable to the sociocultural sentiments of each population. Establishing a stable
agreement requires an implicit weighting of economic, political and social constraints amongst
multiple parties. For this reason, this chapter closes by framing the conclusions in the context
of game theory in which different dimensions of bargaining power are explored. The specific
parameters investigated are proposal power, patience, potential for counteroffers as well as the
existence of outside options. This framework reveals that while the BRI started as a Chinese
initiative, China does not necessarily hold the most favorable bargaining position.

Section 4.1 of the chapter evaluates the role of public support for China and BRI. Section
4.2 examines the role of the government-friendly and opposition media in influencing attitudes
toward the BRI. Section 4.3 examines the Russian and Kazakh alternative visions for Eurasian
integration to illustrate how these visions might diverge from that of China. Section 4.4
explores the institutional constraints that are predicted to prevent effective coordination.
Section 4.5 evaluates subnational support for the BRI in the countries to predict whether the
current political support would fade with a change in the head of state. Section 4.6 evaluates
the different dimensions of the debate through a game theory framework to understand the
tradeoffs of different parties according to both economic and political dimensions. Section 4.7
concludes.

The principle data sources for this chapter are interviews with public sector officials and
academics in Kazakhstan, China and Russia. A secondary source of information is a review of
political speech and media analysis connected to the project in the countries as well as
institutional planning documents for the national railway monopolies. Independent polling
data, where available, is used to assess public attitudes that may affect support for the BRI.

103
4.1 The Role of Public Opinion

At present, no Eurasian country qualifies as a true democracy. Yet, the assumption that
because competitive national elections are not held, these countries are unaccountable to and
unmoved by popular opinion is flawed. Quite the contrary, long-term survivors such as
Vladimir Putin and Nursultan Nazarbayev have mechanisms to identify and respond to shifts in
public opinion, or to determine when the intended message is not getting through. For example,
President Putin is known to rely heavily on polling by the non-partisan Levada Center in
crafting his public image and positions.
158
The center not only regularly polls Russian citizens
on Putin’s own approval rating, but also on their opinions about other countries. In one sense,
the views of Russians are colored by the state-controlled media, but only to a point. For
example, while Russian state media has taken a sharply anti-American tone for over a decade,
as recently as 2012 a substantial majority of Russians held a favorable opinion of the United
States.
159
Only after the Crimean conflict did approval of America drop precipitously.

China, by contrast, has seen extremely favorable ratings by the Russian populous for
several years now. This is quite remarkable given factors such as the long history of Chinese-
Soviet animosity, the sharp growth of Chinese military spending, and the large number of
undocumented Chinese migrants in Russia.
160
Thus, while Putin’s embrace of China has
certainly helped the country’s approval ratings amongst the Russian populace, it is not the
whole story. Only 13% of Russians have an unfavorable opinion of China, but one third hold a
negative opinion of Putin and are thus unlikely to reflexively adhere to his preferred portrayal.
Rather, Putin’s support of and regular praise for China should be seen as a path of least
resistance taken by a pragmatic politician.
161
Given Western sanctions, Russia’s embrace of
China is also partially explained by a lack of alternatives.

In this situation, however, past is not necessarily prologue. With the right combination
of internal and external factors, Russians’ opinions toward a country can change quite quickly.
For example, positive attitudes toward Ukraine fell from 80% to 25% within a couple of
months due to the Crimea conflict. While it is unlikely that China will suffer such a steep
reversal, at the moment it appears that Russian approval ratings of China have nowhere to go
but down. To judge Russia and China’s current cooperative relationship on the BRI may say less
about the BRI and more about the current state of relations.

If and when this relationship sours, Russia’s support for the BRI may need to be
reassessed – particularly as the BRI and China have become almost synonymous in recent
years. Opposition media within Russia has noted the failure of Putin to appreciate the
implications of such a close affiliation with China on Russia’s national sovereignty, particularly
given that the fear of threats to sovereignty and national self-determination has formed the
core of Putin’s anti-Western worldview.

If Russians begin to sour on China, the dearth of opposition from mainstream media or
the parliament may allow Putin to defy political gravity for some period of time, yet he would
eventually find ways to steer his public position in line with the currents of popular thought.
Thus, even if Putin personally believes that a strong alliance with China on the Silk Road is in
Russia’s national interest, he may decide to keep China at arms’ length if domestic headwinds
lead to potential for embarrassment.

104

4.2 Media Coverage and Commentary of the Belt and Road

In order to determine how broad and deep support for the Silk Road is in these
countries, we have to examine sources beyond the official statements. Despite the fact that
there is little overt political dissent, diversity of opinion and even dissent is often expressed
through accepted forums. In Russia, this consists of government-sanctioned think tanks such as
the Valdai Club and analyses in academically-oriented media such as Rossiskaya Gazeta and
Kommersant. To gather a more complete cross section of popular opinion on the topic of the
BRI in Russia, Kazakhstan and Belarus, I mined a spectrum of Russian language publications
ranging from sources considered loyal to the government to opposition media. In addition to
print broadcasts, I also mined television news transcripts.

In all of these countries, the line separating what is government-provided information
versus news media is often blurred. Thus, I included official statements along with state-
controlled media within the same category. Figure 4.1 notes the total number of articles that
mention the Russian term for the BRI over the last four years excluding web news and blog
sources. Russian media was rather slow to start writing about the initiative, yet 2017 saw an
incredible surge of discussions. Kazakh media interest in the project started earlier, perhaps
reflecting the importance of the initiative to the Kazakh economy and the fact that Xi Jinping
first announced in the initiative in Kazakhstan. Interestingly, 2018 saw a decrease in the
number of articles that mentioned the project. Many of the media articles in which the term BRI
appears are not focused on general foreign policy positions, the BRI is simply mentioned as an
illustration of international cooperation. Thus, we cannot infer that copious media covered
necessary translates to a readership that is fully informed regarding the initiative.
Unfortunately, a comprehensive accounting of mentions in the Kazakh and Belarussian
language media is not currently available.

105

Figure 4.1: Media Mentions of the BRI in Russian Language press by Country
Source: Factiva

Approximately one month after Xi Jinping’s announcement, the Russian government-
owned newspaper “Rossiskaya Gazeta” published one of the first semi-official responses to the
OBOR proposal. The author was Fedor Lukyanov, chairman of Presidium of Council for Foreign
and Defense Policy. In the article, entitled “Eurasian Integration Not Our Way,” the author noted
that Russia needed to rethink its earlier strategy on Eurasian integration. He wrote that
Russian officials still officially included Ukraine within its proposal for a Eurasian Economic
Union despite the fact that relations with Ukraine were already spiraling downward. On the
other hand, discussions of the Eurasian Economic Union had not explicitly sought to include
China. Greater coordination, he argued, is essential if Russia hopes to develop the Russian Far
East in earnest.
162
While Eurasia was long considered a peripheral region, it is now
increasingly at the forefront of international attention for both strategic and economic reasons.
He concluded by challenging Russia and China to work closer together on Eurasian issues and
warned of grave consequences from a lack of coordination.

In Russia, broadcast television remains the dominant medium shaping public opinion.
While Russians have access to a wide variety of print and digital media, the lead news
programs such as Vremya, Vesti and Segodnya convey the government’s preferred narrative
regarding the New Silk Road. Fortunately, the stations are also very thorough in archiving
stories, thereby allowing transcripts of past broadcasts to be reviewed.

ORT

What Russians refer simply as the First Channel, the Russian TV station ORT has been
the primary avenue for disseminating the official position of the government since Soviet times.
It is carried not only within Russia but throughout the former Soviet Union. The flagship news
program is entitled Vremya. ORT’s commentary on the New Silk Road and/or the Belt and Road
Initiative has been quite limited. It did not feature one story on the issue in 2018.

0
500
1000
1500
2000
2500
3000
3500
2015 2016 2017 2018
Russia Kazakhstan Belarus

106
NTV

Another widely viewed news source, NTV Channel, has referenced BRI on occasion
through its news program Segodnya, for example, when referencing the opening of a new
intermodal terminal near Moscow that would take advantage of Eurasian trade or in reporting
a discussion of the Valdai Discussion Club, a well-known collection of political elites and
economists on the future of Eurasian integration.

RTR

Vesti is the principal daily news program on Russia’s second national channel. It started
in 1991 and was previously known to include critical analysis of government policy. Since
2002, the channel has generally supported the Kremlin.
163

Unlike Vremya, Vesti has occasionally referenced Chinese efforts in Central Asia from a
critical perspective. Consider the following quote from a November 14, 2018 piece entitled
“China is preparing to take control of Afghanistan.”

Like a frog, CPEC (China Pakistan Economic Corridor) will slowly stew in the pot of
South Asian instability. The CPEC is the flagship of the One Belt - One Road Initiative, a
Chinese plan to establish world domination. The phrase attributed to Napoleon sounds
like this: “Never interfere with the enemy if he is engaged in self-destruction.”
(translated from Russian)
164

While this article refers to CPEC rather than the Silk Road corridor, the critical – almost
paranoid – tone marks a sharp departure from most Russian media treatment of China.

In September 2018, Vesti featured the efforts of Orenburg, a city near the border with
Kazakhstan, to connect to the Silk Road. It featured State Duma Deputy Igor Sukharev, United
Russia deputy from Orenburg region,
165
who spoke glowingly about the role of both improved
rail and road connections between China and Europe to create jobs.

Generally speaking, stories regarding the BRI have seen limited play on Russian
broadcast media. When stories have aired, they have typically had a superficial presentation.
There have been some critical stories regarding Chinese designs on Afghanistan, yet they have
not been extended to a global critique of the Silk Road.

Valdai Club

The Valdai Discussion Club is a think tank of elites and academics that is closely
connected to President Putin. The club has made Eurasian integration through the BRI and the
Eurasian Economic Union a frequent topic of discussion. In October 2018, President Putin was
interviewed by the Valdai Club and again gave his full-throated support to the BRI. In response
to Kazakh delegate Yerlan Karin, Putin stated, “First, in regard to China's Belt and Road
Initiative and everything related to it, including the economic aspect. This initiative is our
friend, and I indeed consider (Xi Jinping) our friend.”
166
President Putin noted that Russia is

107
currently planning for a four-fold increase of rail traffic on the Baikal Amur railway in
connection with the BRI investments.

Putin also noted the ability of Russian-Chinese collaboration to overcome the impact of
U.S. sanctions to the benefit of both countries, specifically, by ramping up soybean exports to
China to make up for U.S. exports that had fallen victim to the U.S. trade war.

Print Sources

Of the major print and internet media that cover the BRI, the most frequent mention has come
from the wire service ITAR-TASS. Table 1 shows the distribution of mentions by source.

Table 4.1: Media Mentions of the Belt and Road in the Russian Press by Source 2014-18
Source: Factiva

Source
BRI
Mentions Description
ITAR TASS - All sources 530 Wire Service
RIA Novosti 523 Kremlin controlled
Rossiyskaya Gazeta 99 Government friendly
Kommersant 78 Analytical / Business
Vesti Finance 78 Business
Nezavisimaya Gazeta 54
Analytical / Light
opposition

Another metric is media support of the Moscow-Kazan High Speed Rail which is
currently the most high-profile Russo-Chinese collaborative project associated with the BRI.
This project has recently become more controversial due to increasing cost estimates and low
ridership projections. Unlike media mentions for the BRI which have tapered off in recent
years, media discussion of the Moscow-Kazan railway is actually increasing. For example, the
number of stories published by the elite Russian business magazine Kommersant (equivalent to
The Economist in Russia) that discuss the project rose from 10 stories in 2017 to 29 in 2018.
Several of the Kommersant stories mention the seemingly embarrassing gap between original
and current cost estimates with implicit criticism of the project’s management. Thus, while
overall media coverage of the BRI remains positive, most of this coverage is also superficial.
The details of the actual projects are more critically received.

108

Figure 4.2: Media Mentions of the Moscow-Kazan High Speed Rail
Source: Factiva

Notes of caution regarding the economic wisdom of Russia’s collaboration on the BRI is
also starting to from more mainstream publications such as the daily Gazeta.ru.
167

У китайского мегапроекта имеется и оборотная сторона. Невыгодная для России.
Когда проект Шелкового пути наберет обороты, он создаст проблемы для
российского бизнеса. Ему придется еще жестче конкурировать с китайскими
товарами — в России, на евразийском рынке и лояльных нам ранках Центральной
Азии и Северной Африки

The Chinese megaproject has a downside. It will be unprofitable for Russia. When the Silk
Road project gains momentum, it will create problems for Russian business. They will have
to compete even more directly with Chinese goods – on the domestic market, on the
Eurasian market and in loyal markets of Central Asia and North Africa.

Another Russian concern is that the development of the New Silk Road would allow
Central Asian countries to adopt what is derisively referred to as the “Belarussian Model” of
playing great powers – in this case Russia and China – against each other and benefitting from
the conflict.
168
State-supported media has sought to capitalize on the animus many Russians
feel toward Ukraine in order to point out how much Ukraine is losing out by not participating in
the master plan. In an article entitled “Strangled by Silk,” the popular Kremlin-friendly news
site Lenta.ru contrasts the favorable position that Belarus has secured from trans-Eurasian
cargo as well as the investments/largess the country has received from China with Ukraine
who has been left out and is now, the article claims, trying in vain to promote to China a
circuitous route that would completely bypass Russia.
169
Russian state reporting has also
championed a number of ribbon-cutting ceremonies at industrial parks and transloading
facilities that are intended to become part of the extended freight infrastructure of the Silk
Road.
170

0
200
400
600
800
1000
1200
2014 2015 2016 2017 2018

109

Positions of Opposition Media Toward the Belt and Road

While the Russian state influences the programming of major media outlets and, in
particular, broadcast television, Russian citizens technically have access to a substantial range
of alternative positions through the Internet. A limited number of light circulation opposition
print publications continue to exist. While some websites have been blocked, the extent of
Internet censorship within Russia pales to that within China. With technologies such as Google
translate, Russian citizens, 76% of whom are regular Internet users, have access to a broader
range of alternative viewpoints than was the case prior to Putin’s crackdown on Russia’s last
major opposition news channel in 2002. This does not even consider the impact of social media.

We cannot, thus, assume that President Putin will be able to use state-controlled media
to advance any narrative about the Silk Road and Russia’s intended role in it. Nezavisimaya
Gazeta, which is considered to be a relatively free newspaper, has started to seriously challenge
some of the assumptions of the Belt and Road, reporting that the concept is essentially a vanity
project of Xi Jinping and that China’s former leaders have begun to grumble that Xi is using the
project to build a Mao-like cult of personality.
171
The implication is that the Belt and Road is not
an inevitability and Russia may be seen as foolish if it bases its entire development strategy on
an overblown promise by China.

Novaya Gazeta is another prominent Russian newspaper known for frequent criticism
of the ruling party and its attempts to expose corruption. It has been the victim of several
attacks on journalists in recent years. Compared to mainstream press, Novaya Gazeta has
focused less intensely on the broad economic and geopolitical implications of the New Silk
Road and has instead sought to identify instances in which Chinese largess is leading to
corruption.

One focus has been on Chinese spending in Belarus which, it asserts, is paying off
President Lukashenko by financing vanity projects such as a national football stadium and a
swimming pool as well as soft loans to unprofitable agricultural sectors.
172
Novaya Gazeta
asserts that these loans are being offered to Belarus not due to any particular interest of China
in the country’s economic development potential but rather in order to placate a small country
that has a strategic position along the Silk Road.
173

With respect to Russia, Novaya Gazeta has noted a hint of desperation from the Russian
government as they attempt to agree upon a Eurasian alternative to the Trans-Pacific
Partnership with China while reeling from U.S. and European sanctions. The sanctions have
thus significantly weakened Russia’s negotiating position and made it more likely that China
will come out with favorable terms. China’s investments in Russia have been growing as
western investors depart, whereas Russia has very few investments in China’s economy. This
lack of balance in the economic relationship, Novaya Gazeta notes, cannot be a healthy basis for
forging a mutually advantageous arrangement.

110
Китай будет обеспечен дешевым сырьем и транспортными путями к европейским
рынкам, постепенно превращаясь из «мировой фабрики» в высокотехнологичную
державу. России от старшего партнера будут периодически перепадать дешевые
кредиты, которые можно распределить среди госбанков и построить на них
несколько новых предприятий и железных дорог. Что, конечно, лучше, чем
ничего, но на план «рывка» в развитый мир похоже не очень.
174

China will be provided with cheap raw materials and transport routes to European
markets, gradually evolving from a "world factory" into a high-tech power. Russia will
receive from its larger partner periodic cheap loans, which can be distributed among state-
owned banks, new enterprises and railways. This, of course, is better than nothing, but it
does not seem like a leap into the developed world.

This rather elegant juxtaposition lays out very clearly the risk that Russia is currently
taking by throwing itself into a strong alliance with China. As discussed at length in Chapter 3,
the most obvious benefits to Russia – i.e. rail investments, low interest loans and markets for
natural resources – do not sound particularly appealing when compared to the tremendous
potential benefits to China. For this reason, I argue that Russia’s position only becomes tenable
if it eventually can use the establishment of the Silk Road to bolster its own economic
development strategy. This also illustrates the risk to China in assuming that Russia’s rhetorical
enthusiasm for the project will continue.

Reader comments to Novaya Gazeta articles on the Silk Road point to the disappearance
of sovereignty discussions in Russia’s interactions with China. Take, for example, the following
comment referencing Russia’s perceived hypocrisy.

When it came to cooperation with the West, the word "sovereignty" was constantly
mentioned. When Putin's Russia submits to China, sovereignty is not even remembered. We
will be the north-western province of the Chinese Empire. Awesome!
(Translated from Russian)
175

One implication is that Putin’s fixation with sovereignty had more to do with his desire
to tamp down on domestic dissent and stage manage re-elections without incessant finger
wagging from the West. From this perspective, he will be much less likely to face criticism from
China. If, however, sovereignty is defined more broadly – as reflecting encroachment into
Russia’s economy and economic independence – then China poses a larger threat than the West
ever did. A Russian rapprochement with the West and subsequent end to sanctions might be
seen, under this logic, as a risk factor for China.

Kazakh Media

Kazakhstan’s media is made up of Russian and Kazakh language sources. The two main
government-sanctioned news outlets are Kazakhstanskaia Pravda and Egemen Kazakhstan. Of
the two, the Russian language Kazakhstanskaia Pravda hews most closely to government policy
and is used to convey the government’s thinking on a range of issues.
176
In general, Kazakh
state media has been more uniformly positive with respect to China and the Belt and Road
Initiative when compared to independent or semi-independent media. For example,

111
Kazakhstan’s Russian language media has been saturated not only with mentions of the BRI in
general but the Khorgos dry port in particular. However, as noted by a prominent Kazakh
political scientist,

Kazakh-language media private newspapers exhibit the most hostility towards China. The
display of negative and stereotypical images of China and its people is pervasive,
demonstrating strong fear and antagonism.
177

As an example, the Kazakh language paper Zhas Alash has recently highlighted the
persecution of ethnic Kazakhs in Xinjiang, particularly those who hold dual Chinese-Kazakh
citizenship.
178
There are currently about 1.5 million ethnic Kazakhs living in Xinjiang Province.
Another story of particular note is an ethnic Kazakh who escaped what it refers to as a Chinese
re-education camp for dissidents.
179
In some internment camps, another article claims, ethnic
Kazakhs now outnumber ethnic Uyghurs.
180

The level of criticism against China sometimes is tinged with xenophobia. As reported by
Burkhanov and Chen, Kazakh language papers frequently target potential mass immigration
from China as a threat to national sovereignty given Kazakhstan’s small native-born population.
As we have seen with Chinese industrial and infrastructural investments elsewhere in the
world, these projects often require the massive temporary relocation of Chinese engineers and
construction workers. When these projects are constructed in deeply impoverished countries,
there is little concern that the Chinese workers will attempt to stay once the project is
completed, yet Kazakhstan – which offers, in many ways, higher quality of life and greater
personal freedom – would be a more attractive destination for Chinese workers. Another
concern in Kazakhstan has to do with China’s “draconian foreign travel regulations imposed by
Beijing on ethnic Kazakhs and other minorities,” which prevent Kazakhs living in China from
returning to Kazakhstan for fear of reprisals on their relatives.
181

In an email exchange, Dr. Burkhanov noted that since the publication of his article in
2016, the rhetoric toward China and the Chinese from the Kazakh language press has only
grown harsher due to the land protests of May 2016 and the spread of information on re-
education camps in Xinjiang. The 2016 land protests were ostensibly a protest against a
proposal by the government to allow foreigners to lease land, yet outside analysts viewed anti-
Chinese sentiments and fear of a silent Chinese takeover as the true source of anxiety.
182
The
response by the Kazakh government was to suspend the implementation of the law, perhaps
showing the potency of mass protest in a country that has seen fewer such instances when
compared to other former Soviet states.
183

Belarussian Media

Belarussian media is dominated by Russian language sources and almost exclusively
represents the official views of the government of President Lukashenko. As previously noted
in Figure 4.1, the mentions of the BRI in Belarus grew significantly from 2015 to 2017 and then
fell slightly in 2018. By contrast, explicit mentions of the marquee collaboration project
between China and Belarus have continued to grow. Figure 4.3 shows the frequency of news

112
containing the phrase “Great Stone Industrial Park” or “Великий Камень”.This term is
mentioned far more frequently than the general BRI.

Figure 4.3: Articles Mentioning the Great Stone Industrial Park in Belarussian Media
Source: Factiva

Ukraine

Ukraine was originally envisioned to have a significant role in hosting Silk Road
shipments bound for Europe. The war in Donbass put those plans on hold, yet some Ukrainian
strategists have held out hope that a restoration of acceptable political ties with Russia may
allow for Ukraine to host at least a minority of trans-Eurasian shipments. If Ukraine were to
establish an acceptable détente with Russia, this would lower the concern of a Belarussian
bottleneck for Silk Road shipments, making China an unlikely stakeholder in the normalization
of Russian-Ukrainian relations. The geography of Ukraine would be favorable to deliver cargo
to central Europe given that it would allow Eurasian rail shipments to reach much closer to
Western and Southern Europe without making a change of gauge.

Hope of restored transport coordination has been imperiled by recent efforts by the
Ukrainian government to cut off all passenger and freight rail connections with Russia. Pro-
Russian Ukrainian parliamentarians such as Vadim Rabinovich explicitly held out the New Silk
Road as a carrot for other Rada members who, despite having severe animosity towards Russia,
may nevertheless be hesitant to take this extreme step.

The [New] Silk Road will bypass Ukraine, and so all the routes will go around us. There will
be a developing world economy, and in its center - Ukraine, through which nothing will go.
– Rada Deputy Vadim Rabinovich
184
(Translated from Russian)

The proposed elimination of train connections to Russia marks a further degree of
separation between Ukraine and Russia.
185
While it is possible that transportation connections
could be resumed – as they were between Russia and Georgia a few years after the Russo-
0
200
400
600
800
1000
1200
2015 2016 2017 2018

113
Georgian war – it could also become a situation analogous to the Sino-Soviet split, in which a
temporary separation quickly becomes politically impossible to reverse.

As with Kazakhstan, we would expect to see a significant distinction in how the issue of
the Silk Road, particularly in its current incarnation with heavy Russian involvement, would be
treated in the Ukrainian language versus Russian language press. Ukrainian language media has
played up the importance of early maps of the One Belt, One Road project that showed the
project bypassing Russia, concluding that this was done intentionally due to Russia’s
untrustworthiness.
186
Some articles mention the role of Ukraine in relieving the bottleneck at
Brest, but do not mention Russia’s potential involvement in the route.
187
The former Ukrainian
Prime Minister Arsiney Yatsenuk has recently entered into negotiations with Lithuania about
an alternative Silk Road to avoid Russia. Again, these local political disputes ultimately detract
from the ability to create a single rail corridor that is in the best interest of manufactures and
shippers, regardless of their national allegiance.

4.3 The Russian and Kazakh Alternatives

While Russia and Kazakhstan are today supportive of the BRI concept, they have also
developed their own competing versions of Eurasian integration. Russia and Kazakhstan have
their own plans that prioritize Eurasian development that enhance their own economic
development priorities, not simply serving as a corridor for China. The Russian TEPR Razvitie
initiative, first put forward by the former director of the Russian National Railway (RZD)
Vladimir Yakunin, can be seen as a more restricted yet analogous vision of Eurasian transport
development as was proposed by China through the BRI.

TEPR is an acronym that stands for Trans-Eurasian Development Belt in Russian. Given
Yakunin’s close personal and professional relationship with President Putin, the points put
forth in TEPR can be assumed to align with Putin’s own views. The project was first conceived
prior to the announcement of the One Belt, One Road and was repackaged in 2014 as an initial
Russian response to the Chinese proposal.
188

As noted by Interfax “the (TEPR) project envisages large-scale construction of transport
arteries throughout Russia, development of infrastructure, [and] attraction of labor resources
from Asia to the Trans-Urals and the Far East.”
189
The development plan defined an area of
influence around transportation corridors of 200-300 km that would serve as the core region of
the TEPR with development of rail connections spearheaded by RZD in collaboration with
neighboring countries.
190
Notably, the plan warns that Russia should actively pursue transport
infrastructure on its own terms, lest it become a mere channel for shipping cheap consumer
goods from China to Europe.
191

114
С этой точки зрения, ТЕПР – это не только транспортно-транзитный коридор, не
только "труба" для перекачивания дешѐвого ширпотреба из Китая в Европу через
пространства Евразийского Союза.

From this point of view, TEPR is not only a transport and transit corridor - a "pipe" for
pumping out cheap consumer goods from China to Europe through the space of the
Eurasian Union.

In this way, the development of TEPR seems to be a response to emerging assumptions
about Russia’s role as a transit country for Chinese goods shipped via the new Silk Road.
Yakunin’s plan takes umbrage at this suggestion. To back up his assertion, he quotes President
Putin’s description of Russia’s place in the world «не Россия находится между Европой и
Азией, а Европа и Азия находятся слева и справа от России» “Russia is not located between
Europe and Asia, but Europe and Asia are located on the left and right of Russia.”

This somewhat tongue-in-cheek formulation is intended to emphasize that Russia
should not be seen as a “no man’s land” between Europe and Asian culture but as an equal
cultural and economic space.
192
This sentiment of being viewed as more than a corridor also
speaks to the concerns of Central Asian states regarding their future role in Eurasian
integration. At the 10
th
Shanghai Forum, Yakunin proposed a merger of TEPR and the Silk Road
Economic Belt.
193
Since Yakunin’s departure from RZD in 2015, the concept of TEPR Razvitie
has been used less frequently in the Russian government-sponsored press. Nevertheless, the
formulation of TEPR Razvitie was intended to demonstrate that Russia had its own vision of
Eurasian transport integration.

Nurly Zhol

Kazakhstan has also developed its own infrastructure integration vision, entitled Nurly
Zhol. The initiative was first put forward in November 2014, shortly after the announcement of
the One Belt, One Road initiative. Like TEPR and the BRI, Nurly Zhol emphasizes the need for
joint investment with China to construct new transcontinental freight corridors.

4.4 Factors Constraining Coordination

Mutual trust is essential for successful infrastructure coordination. While the countries
along the route are aided by the current environment of goodwill, there are many factors that
could affect the level of trust between the parties. These factors include corruption, cost
overruns on China funded infrastructure projects, and conflicting views of the long-term role
and purpose of infrastructure investments.

The persistence of local corruption is one factor that could significantly impede silk road
shipments. The viability of the Silk Road as a cost competitive modal option could easily be
undermined by petty corruption at the border, i.e. Russian, Kazakh or Belarussian customs
officials eliciting bribes to let trains pass or police allowing the pilferage of cargo in transit. As

115
noted by the World Bank, “rent seeking behaviors along these (BRI) corridors contribute to
increasing transit costs.”
194
The assumptions of shipment competitiveness with air and sea
alternatives that are the basis for the Silk Road’s development assume that cargo can cross
national boundaries free of artificial encumbrance. If such abuses were to occur on a significant
scale, it would be a source of great embarrassment to whichever government was held
responsible. Given the personal prestige Xi Jinping has attached to the project’s success, it could
also lead to a diplomatic row with China.

For Xi Jinping, intolerance of corruption has been as central to his administration as the
BRI. Xi’s anti-corruption campaign has ensnared thousands of officials since it was initiated in
2012. Since returning to the presidency, Putin has made an analogous and highly publicized
show of his efforts in rooting out corruption by Russian public officials, yet only Mr. Putin
knows if his newfound confidence in Russia’s institutional integrity is genuine.
195
If he believes
that he cannot control border officials from engaging in entrepreneurial activity, he may
reluctantly conclude that the economic gains are outweighed by the political and public
relations risks.

Cost overruns could serve as another source of mistrust as China and Russia begin to
collaborate, particularly if bad faith contracting and corruption are blamed. For example, the
signature Chinese-Russian infrastructure collaboration project at the moment is the Moscow-
Kazan High Speed Rail, which is by far China’s largest transport investment in the Russian
Federation. As currently envisioned, the project has little direct impact on freight operations,
but it could free up capacity through the removal of passenger trains from existing freight lines.
China has invested over $6 billion in financing the project, along with engineering expertise.
The line is expected to be the first phase in an even more ambitious plan for a high-speed rail
link connecting Moscow to Beijing via Ulaanbaatar.
196

While this project was proposed by President Putin to be completed in time for the 2018
World Cup, as of early 2019 the project is still not under construction. Original cost estimates
have almost doubled in the intervening years (from 14.4 to 24.5 billion dollars).
197
In December
2018, Russia’s finance minister stated that the project was not economically justified since the
intermediate locations had relatively small populations and because the link had regular
inexpensive air service – a rare incident in which a project personally championed by the
president was publicly questioned by his own minister. In a Kommersant article, the finance
minister noted that the project currently has a negative net present value of - 641.9 billion
rubles.
198
In an interesting twist, a Russian economic analyst noted that “high-speed railways
are one of the most corrupt areas in China.”
199
The author also notes that “the benefits are
hypothetical, but the risks are obvious and specific,” citing the example of Sri Lanka as a
cautionary tale for Russia in preventing a Chinese debt trap.
200
Thus, despite the general
goodwill between China and Russia, now that actual infrastructure coordination is
commencing, we see the beginnings of resistance and suspicion creeping into the Russian press
regarding China’s ultimate intentions.

The Moscow-Kazan railroad will be seen as the canary in the coal mine for Russian-
Chinese infrastructure collaboration. It is perhaps an unfortunate poster child given that this
project is far costlier and technologically complex than other potentially more pragmatic
freight-oriented investments. If we compare this high-speed rail infrastructure project to the
comparable Great Stone Industrial Park in Belarus, the latter would appear a no less ambitious

116
yet far safer approach to infrastructural coordination as it can be completed incrementally over
decades.

There is a disconnect in China’s approach to domestic high-speed rail, where it is willing
to wait for decades to see economic return, and Russia’s own expectations. For example, no
reasonable short-term economic argument can be made for China’s recent construction of a
2500 km high-speed rail line connecting Xi’an to Urumqi. As described in Chapter 1, these
projects take on a symbolic as well as economic role. While this project may never become
profitable, it was seen as necessary to politically tie the capital of the Uyghur Autonomous
Region to the Chinese heartland. The Moscow-Kazan project bears some superficial
comparisons to the Lanzhou-Urumqi line. Like Urumqi, Kazan is a Muslim frontier city that has,
in the past, shown rumblings of separatist discontent.
201
For these reasons, Chinese officials
may project their own concept of the symbolic role of transport infrastructure onto Russia and
assume that Russia will be willing to make a long-term money-losing rail investment in
Tatarstan if it helps Putin to better unite his empire. Yet, it is unclear that Russia needs to take
this step with respect to Tatarstan.

Despite its past rumblings of separatism, today Tatarstan has emerged as one of Putin’s
most loyal subjects – with 85% of voters of the most recent parliamentary election supporting
the United Russia party, compared to 55% nationwide. Thus, while Russia is interested in
bolstering economic opportunity in Tatarstan, this is not seen as an urgent priority. There is no
analogous need for Moscow to symbolically tie itself to Kazan with a high-speed rail project for
the sake of national unity. Thus, this project is very different from that of the Lanzhou-Urumqi
high speed rail line. This explains why the Russian finance minister feels comfortable openly
voicing criticism of the project, despite potentially displeasing Putin and Xi Jinping. Clearly, the
finance minister can be expected to have a number-crunching worldview and the ultimate
decision may favor the more political elements who assign more weight to symbolism. Yet, the
finance minister’s very public rebuke of the marquee Chinese-Russian infrastructure
coordination scheme has its own symbolic meaning – that Russia can tell China thanks but no
thanks. In game theory terms, to be discussed later, it shows the power of patience in a
negotiation. China had a similar in Malaysia last year regarding the failed East Coast Rail Link.

Kazakhstan

Kazakhstan has its own institutional limitations. Like Russia, concerns of corruption
hold true at both the local and national level. To address rent seeking behaviors in the
economy, the government of Kazakhstan established a ministry of national monopolies which is
responsible for regulating both extractive industries and the national rail system. In August of
2017, I interviewed Raushan Kumekbaeva, an official in the ministry in Astana who noted that
one of the goals of the Eurasian Economic Union was to bring greater transparency to freight
rates settings for cross-border shipments. While admitting that the system was not yet fully
implemented, in her view extending this rate regulatory structure for shipments to and from
China would be an important step in reducing suspicions of rent seeking.
202

Additionally, there are fears that Kazakh animosity towards China will complicate
economic cooperation. Kazakhs’ views toward China are complicated by a large ethnic Kazakh

117
population that resides in China’s Xinjiang province as well as a significant Uyghur population
that lives in Kazakhstan. Since independence, Kazakhstan has had an aggressively secular
orientation inspired by its former Soviet leader and president Nursultan Nazarbayev who
resigned from the presidency on March 19, 2019 after three decades in power. Most Kazakh
citizens are wary of the Islamic awakening in China’s Xinjiang province. Nevertheless, efforts to
homogenize the ethnic Kazakh population within Xinjiang that discourage the use of Kazakh
language and cultural traditions are likely to evoke an emotional response, given the pain
caused by analogous Soviet efforts a generation prior. Such anti-Chinese sentiments have
emerged as a staple of Kazakh-language media.

Mistrust for China is found not only amongst the nationalist-oriented press in
Kazakhstan, but also within key institutions. As noted by Adyl Azhumadi, an official with the
Kazakh Civil Aviation Committee, the Kazakh security service has created unduly harsh visa
entrance requirements for Chinese citizens that have greatly impeded person-to-person
exchange.
203
Even during the hosting of the World’s Fair (Expo 2017-Astana), in which
Kazakhstan was eager to boost lagging attendance volumes, Kazakh security services initially
sought to retain strict entrance requirements on Chinese citizens, eventually relenting and
allowing them to acquire a 72-hour transit visa valid only for Astana.

Fear of a Chinese “takeover” of Kazakhstan is also reflected in strict restrictions on
Chinese workers collaborating in joint infrastructure projects. In an interview, Eldar
Dyussetaev, a Kazakh trade official who assisted in drafting the protocols for the Eurasian
Economic Union, noted that by law no more than 10 percent of blue collar workers on an
infrastructure project can be foreign, and that this provision is more stringently enforced
against Chinese nationals. For managerial staff, up to 30% can be foreign.
204
The more stringent
standard against blue collar workers was recently adopted in order to prevent Chinese workers
from using construction related projects as an avenue for immigration to Kazakhstan.

Conventional analysis of China’s dealings in the developing world asserts that
negotiations between China and other non-democracies along the Silk Road are made easier by
the lack of institutional checks and balances.
205
By this narrative, China is willing to glad-hand
dictators and use a combination of debt and largess to smooth over differences – thereby
making the infrastructure alliance underpinning the BRI far easier than it would be if the BRI
countries were democracies. This approach has even been noted in the Russian press, despite
the fact that the Russian state’s own soft power efforts have been subject to the same criticisms.
As noted by the Russian daily Lenta.ru,

Leaders of unfree states do not need to explain why their regime does not strive for
democratization (to accept Chinese aid). Another principle - non-interference in internal
affairs - distinguishes Chinese diplomacy from the American approach. This has already
helped China get closer to a number of states where the rule of law does not prevail.
(Translated from Russian)
206

Yet, the same governance structures that have allowed China to quickly strike
handshake agreements and ribbon cutting ceremonies with BRI leaders around the world may
greatly hinder the ability of these agreements to be sustained over the long term. The
assumption that infrastructure coordination between non-democracies is fast and easy is half
right. It fails to take into account the very different governance structures of the countries along

118
the New Silk Road that complicate long-term coordination. While none of the countries along
the evaluated corridors could be considered a democracy, they are all very different forms of
non-democracy with distinct decision-making structures and methods by which unofficial
dissent towards government action is expressed. These decision-making mechanisms are
seldom transparent and can only be truly appreciated through experience.

Countries within Eurasia that have a long history of close diplomatic ties will have a
more intuitive understanding of how political decisions are made in the other country. Thus, it
is likely that China’s decision-making processes are more understandable to Kazakhstan at
present than they are to Belarus, whose significant diplomatic dealings with China have a much
more recent origin. Even Kazakhstan and Russia, the countries in the region with the longest
history of coordination, have had recent problems bringing infrastructure coordination efforts
to fruition.

For example, Beisen Ussenov, the deputy mayor of Karaganda and a former official at
the Kazakh Ministry of Transport, noted in an interview that in 2018 the country faced a
significant impasse with Russia regarding the construction of the Western China-Western
Europe Intercontinental Corridor.
207
(Figure 4.4) Mr. Ussenov noted that his counterparts
from the Russian ministry of roads had been enthusiastic when the project was first negotiated
in 2015, yet by late 2018 Kazakhstan had largely completed construction while Russia was still
in the planning stage.

Figure 4.4: Illustration of the Kazakh Western China – Western Europe Highway Corridor

Mr. Ussenov’s conclusion was that while Russia was rhetorically committed to the
project, it was revealed to be a much higher priority for Kazakhstan, yet this realization only
occurred once Kazakhstan learned that Russia was not building its part. Given the analogous
role of this trans-Eurasian highway with the previously discussed trans-Eurasian rail corridors,

119
this does not bode well for Russia’s eventual role in the BRI. It also foreshadows the difficulties
that China may encounter in the Moscow-Beijing high speed railroad and other endeavors that
require joint planning.

While Kazakhstan accuses Russia of not fulfilling its end of the bargain, Kazakhstan has
also been accused of slow walking infrastructure improvements.
208
The marquee infrastructure
collaboration project between China and Kazakhstan is the Khorghos border crossing and dry
port. China has poured a massive amount of investment into the project and has constructed a
new city in the remote location. To this point, Kazakhstan’s investment has been modest. An
aerial image of the border (Figure 4.5) shows the dramatic discrepancy in infrastructure on
the Chinese and Kazakh sides of the border. Kazakhstan has improved the roadway
connections, but has not yet embraced the concept of a twin logistics city.

Figure 4.5: The Dry Port of Khorghos Showing the Discrepancy in Chinese Investment (right) with
That of Kazakh (left).
Source: Google Earth, June 2018

120
4.5 Expressions of Support and Dissent at the Subnational Level

For external analysts, understanding the distinctions in how official and unofficial
dissent is expressed in these societies is crucial for detecting when state support for the overall
project may be at risk. While the first assumption is that the breakdown of cooperation will be
initiated at the national level, subnational actors have multiple avenues to resist and
undermine cooperation.

Despite Xi Jinping’s growing cult of personality, China remains a country dominated by
the communist party both at the national and regional level. The ability of Xi to implement
policies that run contrary to regional interests can sometimes be frustrated by passive
resistance by entrenched local officials. China’s former rulers and their allies have also emerged
as a potential check on Xi’s power.

Russia, by contrast, has weak political parties and regional governors. The largest party
and prime minister serve to magnify the power of the president. President Putin, who has been
either de jure or de facto head of state since 2000, has formed a unitary super-presidential
state. Putin has publicly stated that he will not seek another term in accordance with the
constitution. Thus, while he will be in office until 2024, sometime in the next two to three years
an intended successor will emerge. In addition, if United Russia fails to win a majority in the
upcoming 2021 Duma elections, Putin may be regarded as a lame duck. Russia’s most
significant political transition of the century is closer than it may seem.

Kazakhstan, which has been ruled since independence in 1991 by Nursultan
Nazarbayev, is also undergoing a major political transition. To an even greater extent than
Putin, Nazarbayev has created a semi-regal republic. Nazarbayev dominates all aspects of the
body politic and is the last survivor of the class of former communist party chiefs who inherited
their positions as national leaders after the Soviet Union collapsed thereby increasing the
significance of his March 2019 resignation. By comparison, Kyrgyzstan’s post-Soviet leader
Askar Akayev was overthrown in a 2005 revolution. Turkmenistan’s Saparmurat Niyazov ruled
until death and shifted power to his vice president. Tajikistan, ruled since 1992 by Emomali
Rahmon, has seen recurrent civil war since independence. Finally, Uzbekistan saw prime
minister Shavkat Mirziyoyev elected president against token opposition in 2016, following the
death of former Soviet-era leader Islam Karimov.

Nazarbayev is generally regarded as pragmatic, technocratic and non-confrontational.
209

He has also shown skill in successfully maintaining strong relations with both China and Russia
while at the same time keeping cordial relations with the United States. While his lack of
democratic credentials has meant that he has never been able to truly be accepted amongst the
Western democracies, he has also never been ostracized by the West like Putin. The transfer of
power from Nazarbayev should be aided by the country’s relatively strong economy and
institutions, yet there are remaining uncertainties given that Kazakhstan retains a large ethnic
Russian population which has often threatened to rebel if the government becomes excessively
nationalist. In addition, Nazarbayev’s strict regulation of Islamic religious practice is another
factor that could cause problems now that he has resigned.

121
Dr. Aziz Burkhanov of Nazarbayev University notes that opposition to China amongst
the general population is growing. A recent court ruling blocking the deportation of an ethnic
Kazakh asylum seeker to China which “was met enthusiastically in the (Kazakh language)
media discourse.”
210
That being said, state-to-state relations between the countries are still
regarded as strong, and the nationalist undercurrent of the Kazakh language press does not yet
threaten infrastructure coordination through the BRI. The real question is whether this
situation will hold as the Nazarbayev era comes to an end. Periods of national insecurity tend to
breed nationalist sentiment, which in this case may mean additional hostility towards China.
While Nazarbayev has resigned the presidency, he has positioned himself to oversee the
transition. If Nazarbayev were to die suddenly before this transition to a designated successor
were completed, a turn toward nationalism would be quite possible. As noted before, the Nur
Otan party will survive Nazarbayev’s presidency. If it continues to hold sway, Kazakhstan is
likely to retain its moderate course. In addition, most Kazakhs understand that they cannot
afford to isolate both Russia and China. President Nazarbayev has a strong and respectful
relationship with President Putin, thanks to his long-standing ties to the former Soviet
government. His success in maintaining cordial relations with China at the same time is made
possible by the fact that Russia and China have good relations, with each other. Thus,
Kazakhstan has thus far not been forced to choose one over the other.

From the perspective of predicting political transitions, Belarus has the most
problematic governance structure. It has been led since 1994 by Alexander Lukashenko, a
former collective farm director who has severely limited free expression and displayed an
arbitrary and capricious leadership style. President Putin, despite his undemocratic leanings,
owes a significant share of his success and popularity to charisma, intelligence and general
competence. Lukashenko has few of these qualities. The isolation of Belarus from the world
community makes Belarus in many ways the least predictable partner. In addition, the relative
lack of data regarding Belarus’ economic innerworkings complicates China’s ability to predict
what economic carrots it could offer to further bolster Belarus’ support of the BRI.

Local and Regional Political Support for the BRI

This section examines how local and regional politicians in these countries are
responding to the Belt and Road Initiative and the implications about the depth of support
beyond official statements. Given the long-term nature of the project future political transitions
need to be considered. In chapter 1, I noted that the debate as to whether China would continue
to pursue the BRI if Xi Jinping left office. Similarly, China should track the activities of
subnational leaders and political parties in the BRI

Russia

With respect to Russia, there is a tendency even today for western political analysts to
revert to Kremlinology when assessing Russia’s foreign policy positions. While Putin remains
the single most important political figure in the country, this does not give sufficient weight to
subnational actors. It is well known that Putin has been supportive of the Belt and Road
Initiative in general – and the new Silk Road through Russian territory in particular. The views
of dissenting voices within Russian society have been muted, in large part due to the generally
favorable view of the Russian voters towards China. United Russia is Russia’s dominant
political party which holds over 70 percent of the total seats in the Russian Parliament (Duma).

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The party’s primary focus has been to support Putin’s policies. The party has no overarching
platform or statement of principles. Nevertheless, despite its official non-ideological position, in
practice it hews to a socially conservative and nationalistic worldview as reflected in public
statements.

As the party of Putin, United Russia will face a significant identity crisis as President
Putin begins his transition to retirement, and the leadership of United Russia will need to
develop a coherent set of foreign policy principles. United Russia’s position towards China and
the Belt and Road Initiative may hew closely to Putin’s respectful posture in the near term, yet
there is certainly the possibility that a Sino-sceptic wing of the party will emerge.

Given United Russia’s objective of restoring Russia’s national greatness and global
influence, support for the BRI is likely to remain strong so long as it can be portrayed to show
Russia and China standing on equal footing, solving the development and security problems of
Central Asia together. For example, consider the following statement from Sergei Zheleznyak of
the State Duma Committee for International Affairs.

"Russia and China, as the two key players in the Euro-Asian region and the states that
conduct responsible policy, make great efforts to create new prospects for effective
cooperation between countries expressing the desire for equal dialogue and
development. At the same time, we do not create economic or military-political blocs and
are open to expanding such cooperation with the countries of other continents for the
peace and prosperity of our peoples.”
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(Translated from Russian)

The formation of the Eurasian Economic Union, which was met with great enthusiasm
by United Russia, can also be seen as a realization of a potential counterweight to China’s
growing influence in Central Asia. A significant effort by Russia has been to merge the Eurasian
Economic Union with the BRI wherever tenable. United Russia will likely support the BRI so
long as this process seems to be making progress.
212
Through trade liberalization negotiations,
China and Russia have sought to explicitly contrast their integration efforts with the neo-
mercantilist approach advocated by the United States.
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Kazakhstan

The Kazakh equivalent of United Russia is the Nur Otan party.
214
Like United Russia, it
was formed from the unification of smaller center right parties at the direction of the head of
state. Membership in Nur Otan is expected for almost civil servant or elite in Kazakh society.
215

Unlike United Russia, which has avoided forming an explicit ideological platform, Nur
Otan has an extensive doctrine of principles which is intricately interlinked with the person of
Nazarbayev. The party’s doctrine refers primarily to the relations and obligations of the people
to the state. Nazarbayev’s worldview with respect to international relations is also strongly felt.
For example, the doctrine emphasizes Kazakhstan’s desire to be recognized by the
international community “as an example of peaceful and harmonious relations between
different religions and cultures.”
216
The doctrine also states that Kazakhstan is committed to a

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“multi-vector” foreign policy and that “integration processes (with other countries) are a vital
necessity and the key to sustainable development.”
217

While Nur Otan can be compared to United Russia, the doctrine and principles of Nur
Otan are more explicitly ideological and consistent with goals that have been emphasized by
Nazarbayev for decades. United Russia, by contrast, remains ideologically amorphous in order
to accommodate Putin’s shifting foreign policy methods. Nur Otan’s official codification of
national interests may be intended to ensure a degree of continuity for Kazakhstan after the
end of the Nazarbayev era. If true, this institutional continuity should help to reassure China
that Kazakhstan would not see a 180-degree turn away from its inclusive foreign policy in the
near term, even as Nazarbayev’s rule. Nargis Kassenova from the Harvard Davis Center notes
that Kazakh institutions are overly reliant on his personal directives, making the transition to
new leadership difficult.

Nazarbayev has built a political system that combines Singaporean-style technocratic
governance with feudal loyalty. True, Kazakhstan has made some progress in fostering a
professional state. But, unlike Lee, Nazarbayev has not built strong institutions, such as a
competitive political-party system, or an independent judiciary. This will make the
political transition particularly difficult, because institutions will need to be built along
the way.
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The new interim president, Kassym-Jomart Tokayev is, on paper, a capable hand to
maintain Kazakhstan’s current international orientation. He served in the Soviet Ministry of
Foreign Affairs and was stationed in Singapore in the mid 1970s. Tokayev was also posted to
Beijing in the 1980s and has working knowledge of both English and Mandarin.
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Thus, the
appointment of Tokayev is likely to reassure China that Kazakhstan will not turn away from its
current internationalist course. On the other hand, Tokayev is trained in diplomacy and civil
service rather than executive leadership.

A former Kazakh trade official noted in an email exchange that Tokayev will be an
effective transition candidate given his competence and low profile but did not expect that he
would attempt to hold onto power beyond the transition period. Several Kazakh interview
subjects characterized Tokayev as low on charisma and ambition. Ironically, the same
descriptors were once used for Nazarbayev whose slight frame and reputation for loyalty
almost earned him a role as vice president of the Soviet Union under Gorbachev.
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Thus, while
it appears likely that Tokayev will be a pure transition figure, it is also possible that he will have
a role in the future leadership structure. Nargis Kassenova noted in an email exchange that she
did not believe that the appointment of Tokayev would have any significant short-term impacts
on Kazakhstan’s role in the BRI.
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While it is correct that Tokayev, due to his internationalist
credentials, is not likely to take actions to undermine the BRI, his appointment could also
complicate statecraft. As of this writing, it appears that Tokayev will likely govern Kazakhstan
as part of a triumvirate with Nursultan Nazarbayev and his daughter Nariga Nazarbayeva.
Diplomats traveling to Astana will be unsure as to who is authorized to make decisions. This
could impede BRI planning during a critical period.

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Kassenova characterizes Nazarbayev’s action as the "leave without leaving" model. She
compares him to Lee Kuan Yew of Singapore who retained substantial influence in national
affairs after resigning his official leadership duties. Similarly, Nazarbayev will retain his
position as head of Nur Otan as well as his ceremonial title of Elbasy. Immediately after
Nazarbayev’s resignation, a World Bank official noted in an email exchange that “the writing
was on the wall when he (Nazarbayev) changed the cabinet a few weeks ago. This is an
inflection point – could go well or badly for the country. The next few months will be
critical.”
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This shakeup, incidentally, also installed the former director of the Kazakh national
rail monopoly (KTZ) as prime minister. Regular Kazakh citizens have a mix of cautious
optimism and concern. A student at Nazarbayev University notes

It is frustrating. Initially, I was excited about Nazarbayev stepping down the presidential
position but right now I am just wondering what will happen next. It is still very unclear
what is going on with Astana being renamed
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and new appointments in government
both under Nazarbayev and Tokayev. Given little if no political transparency, I guess we
can only wait and see.
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As Nazarbayev recedes, China should track the political performance of Nur Otan to see
the extent to which the party, under Nazarbayev’s titular leadership, is maintaining its
dominant position in Kazakh society. The doctrine of Nur Otan makes clear that it is designed to
be the dominant political party in the country. As noted in the party’s preamble,

“Партия «Нұр Отан» – доминирующая политическая сила, консолидирующая
общество и обеспечивающая реализацию Государственного курса Елбасы.”

The Nur Otan Party is the dominant political force for consolidating society that ensures
the realization of the governmental course of Elbasy. (Nazarbayev’s honorary title)
(Translated from Russian)

For this reason, it is unlikely that the Nur Otan party could survive as a minority party
once Nazarbayev departs the scene. It is also unlikely that it could effectively rebrand itself as a
party that advocates Kazakh nationalism or animosity towards China or Russia given that these
positions would be the polar opposite of Nazarbayev’s legacy. Consequently, if Nur Otan were
to be supplanted by a new political force, it is quite likely that this party would take advantage
of latent nationalist and/or religious currents. For China, the rise of such a party should be seen
as a warning sign that Kazakhstan’s positive role in realizing the new Silk Road could be
eroding.

Belarus

Kazakhstan has a dominant ideologically coherent center right party, whereas Russia
has a dominant yet ideologically flexible party of power. Belarus has neither. In Belarus,
political parties are emasculated and serve almost no role in helping to understand the political
course that the country will take in the near-to-intermediate future. While most officially
registered political parties are supportive of Lukashenko, the president himself has never been
a member of any political party. In the last Belarussian presidential election, the leading

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opposition candidate ran from a party that had no representation in the Belarussian
parliament.

This lack of political institutions can be seen as a worrying sign for China in determining
the likelihood that Belarus’ current support for the Silk Road project will continue.
Lukashenko’s policies have a certain degree of consistency with respect to domestic economics,
yet his foreign policies have been subject to significant shifts. Like Kazakhstan, Belarus is a
landlocked nation that is boxed in between two powerful forces, Russia to its east and Europe
to its west. In fact, Belarus is boxed in four ways given that it shares its northern and southern
borders with two of Russia’s clearest enemies, namely the Balkan states and Ukraine. The
Balkans are Belarus’ most efficient access to the Atlantic whereas Ukraine serves as its access
point to the Black Sea and Mediterranean. As an example of how precarious Belarus’ position is,
consider that in 2017 Russia insisted that Belarus join its boycott of ports in Latvia and
Lithuania for exports of refined oil products, despite the higher cost associated with exporting
through the Port of St. Petersburg.
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Lukashenko’s balancing act is even more hazardous than that of Kazakhstan. There is
literally no political path that Belarus can choose that can keep it in good graces of all of its
neighbors. While Belarus has historically been closest to Russia, Lukashenko also recently
heaped praise on Ukraine at an October 2018 Belarussian-Ukrainian forum, which had no role
for Russia. Tellingly, Lukashenko invited Ukrainian businesses to participate in the marquee
“Great Stone” Chinese-Belarussian Industrial Park. Lukashenko has loudly complained that
Belarus has been pulled into the Donbass conflict “from all sides.” He promised that
Belarussian-Ukrainian relations will be based on combines, tractors, trolleys and busses – not
tanks – a clear swipe at Russia.

Я не мог не затронуть эту тему в силу того, что Беларусь со всех сторон втянули в
эту проблему. И я хочу, чтобы вы знали нашу позицию: мы если и придем с севера
к вам (я хочу, чтобы это некоторые военные в Украине услышали), то на
комбайнах, тракторах, троллейбусах и автобусах. Мы никогда не придем к вам на
танках!
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Thus, we see numerous signals that Belarus is beginning to chafe at being pulled into
Russia’s political spats with its neighbors. While Belarus remains a loyal ally of Russia, its
recent actions with respect to Ukraine and the Baltics have shown an unwillingness to move in
lockstep with Russia. If Lukashenko makes good on his promise to bring in Ukrainian
stakeholders into the Great Stone Industrial Park, a strong reaction from Russia can be
expected.

Without anything akin to a guiding party platform or statement of principles, we are left
with the specific sayings and decrees of the president in determining the depth of Belarus’
motivations and ultimate support for the Silk Road. For this reason, the president’s statements,
many of which are found on his official web site www.President.gov.by is the principle source
of information. Lukashenko has been both effusive and overt in his official praise of Xi Jinping
and the BRI. On October 1, 2018 China’s national independence day, Lukashenko praised China
for “assuming greater responsibility for the fate of its allies” through the Belt and Road
Initiative.

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In this sense, Lukashenko is not crediting the Eurasian Economic Union + China for
improving Eurasian integration (the preferred formulation of Putin) but rather casting China
itself as the vanguard of change. These and other statements show the emergence of a
deferential relationship to China. Beyond rhetoric, Belarus established 30-day visa free travel
for Chinese citizens in 2018, thereby enabling Chinese experts and workers involved with the
Great Stone projects to move more freely.

As described in Chapter 3, Belarus has the most unambiguously favorable economic
position from the Silk Road. This economic position is reinforced with an enthusiastic political
alliance between Lukashenko and Xi. Nevertheless, Belarus has been forced by Russia into an
increasingly untenable position with respect to its neighbors. How it chooses to respond has
significant implications for the future stability of the Silk Road.

4.6 Analysis: Is there a Nash Bargaining Solution to the BRI?
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Chapters 3 and 4 have outlined the economic and institutional/political lenses,
respectively, that impact the decision of each country to commit to regional integration and
joint infrastructure investments. One way to conceptualize the ultimate decision-making
framework of the countries is to frame it in terms of a cooperative game that can be addressed
through Nash bargaining solution.

Rhetorically, China has framed the BRI as a project where all parties stand to benefit. In
bargaining parlance, this is termed surplus. Yet, it is clear that some parties will benefit
disproportionately – meaning that the surplus may be unevenly shared. It is also possible for
parties to be harmed in a number of ways. Some projects that were once championed by their
host countries are now being characterized as white elephants as more information about their
costs and benefits comes to light. The Moscow-Kazan high speed rail is one such example.
Though not part of the Silk Road, the Malaysian East Coast Rail Link serves as another.

We have also seen the ways in which a robust Silk Road corridor would place unique
pressure on Russia. It could weaken Russia’s influence in both Kazakhstan and Belarus and set
up a scenario in which Belarus could manipulate its unique geography to extract concessions
from Russia such as normalization of relations with the Baltics and Ukraine. None of these risk
factors necessarily mean that Russia will withdraw support, but they should be recognized by
China as potential landmines.

China is relatively new to the world of soft power and has been improvising strategies to
win over partners to participate in the BRI. As I have argued throughout this dissertation, the
key objective for China is to understand the specific economic and political motivations and
constraints for each country along the Silk Road corridor, particularly those such as
Kazakhstan, Russia and Belarus who have functional veto power over the entire endeavor.
China cannot simply use low interest loans and financial sweeteners to force partners to accept
a project that is ultimately not in their national interest. Furthermore, they cannot rely on
handshake agreements with regional strongmen and assume that these commitments will
continue once these leaders leave office. Only an impartial weighting of benefits and costs will
suffice.

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Game theory can be used to illustrate how the risks and payoffs for each participant
country predict the stability of the agreement. The information gathered throughout this
project illustrates the specific nature of how each party stands to benefit. A Nash bargaining
solution identifies scenarios in which one party may choose to withdraw from the agreement.
This approach offers explanatory power for this problem given the fact that a cooperative
solution will produce a significant surplus that will need to be shared between the involved
parties. It can also help to show which commitment strategy is sufficiently stable to survive
shifts in economic projections and political transitions.
It is clear that China’s motivation behind the BRI is tied more closely to internal stability
and geopolitics rather than traditional economic growth. As outlined in Chapter 1, the BRI is a
natural extension of China’s efforts to bolster the economies of its own underperforming
regions in the West of the country. A secondary goal is economic diversification, particularly for
sophisticated products that are too time sensitive to be shipped to Europe by sea
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but
impractical, due to weight or size restrictions to be shipped by air.

The Silk Road cooperative agreement can be framed as a classical bargaining problem
because no one party holds all the cards. It is often assumed that because China launched the
BRI, it is the most important decisionmaker. Yet the intensity of Chinese support for the project
in some ways weakens its position. For Xi Jinping, demonstrating the wisdom and success of
the BRI to his domestic constituents has become essential to the success of his political career.
This allows other parties to potentially support China’s eagerness to extract concessions.

China has an ascendant leader eager to establish a geopolitical legacy. By contrast, the
other Silk Road countries are led by well-entrenched, risk-averse strongmen nearing the
twilight of their respective rule. Thus, the risks and rewards to each party are distinct. In
addition, each party will seek to maximize those dimensions of bargaining power that benefit it
the most. The following is a description of these dimensions and how they could be utilized by
the respective parties.

Proposal Power

Proposal power refers to the ability of each party to make a proposal that can be either
accepted or rejected by the other players. In the example of the Silk Road, China is the
proposer. As illustrated earlier in this chapter, China was not the only country to propose a
plan for Eurasian integration. Russia through the TEPR plan – as well as Kazakhstan through its
Nurly Zhol – proposed analogous if less far-reaching proposals, however these concepts never
gained a significant policy foothold outside their home country. The fact that China successfully
branded the BRI and has entered it into the common parlance has allowed it to set the initial
ground rules about what types of projects should be funded and what their overarching goals
should be. For example, the BRI has emphasized containerized rail on the freight side and high-
speed rail on the passenger side. Both of these technologies play to China’s strengths given its
role as a leading container exporter and its technical expertise in high speed rail. A Russian or

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Central Asian version of the BRI would likely give greater prominence to bulk rail
improvements.

Thus, having proposal power has helped China set the parameters of the bargaining
scenario. It also helped China to achieve some early victories, i.e. agreements with partners to
build numerous infrastructure projects. Proposal power, however, becomes less important in
extended or continuous bargaining negotiations. In 2018, China saw numerous setbacks in
which BRI projects, which had initially appeared successful, began to unravel. Other
dimensions of bargaining theory help to explain why.

Accept, Reject, Renegotiate

Another key dimension of bargaining is whether or not the party without proposal
power can realistically reject the offer. At first glance, this seems odd. What kind of offer cannot
be rejected? The short answer is that in certain impoverished and infrastructure starved
countries, the promise of shimmering new capital projects largely paid for by low interest
Chinese loans can be difficult or impossible for politicians to turn down. The concept of “debt
trap diplomacy” is currently used to criticize many of the loans offered by China to
impoverished countries for BRI-related projects. In bargaining terminology, it shows another
dimension of China’s proposal power.

While most accusations are aimed at loans to poor countries, clearly middle-income
countries are also attracted to the lure of Chinese capital, particularly if it results in ribbon-
cutting ceremonies. What we have seen recently, however, is that some middle-income
countries have shown that they have the option of saying no. While infrastructure projects are
attractive, they are not seen as essential.
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Malaysia’s decision regarding the East Coast Rail Link has shown that it is possible to say
no to China if the terms become too unfavorable. Russia has also shown that is has the option to
say no with respect to the Moscow-Kazan high speed railroad. It is unclear at this point
whether the finance minister’s very public voicing of opposition to the project is intended to
compel Russia to back out of the deal or whether it is a strategic move to improve Russia’s
bargaining position.

Thus, we see how China’s proposal power has been the dominant factor steering its
approach to infrastructure in low-income countries. A proposal is made to construct, for
example, a new hydroelectric dam. China sets the terms of the proposal, which the other
country can only accept or reject, yet is in reality under tremendous pressure to accept. In
middle-income countries, however, there is greater ability to counter-offer and, if necessary, to
walk away from the bargaining table.

Patience

Patience refers to the ability of a party to wait for a better deal, using the fact that the
party that needs the deal to happen the most is likely willing to pay a premium – i.e. a greater
percentage of the total surplus – in order to make it so. Given that China’s economy is stronger

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than that of Russia or Kazakhstan, we might initially assume that China is the more patient
party. After all, Russia would seem to need a development solution for its impoverished regions
more urgently than China, which has already made substantial strides at addressing regional
inequality. Yet, the evidence and specific actions taken by the countries show this not to be the
case. Xi Jinping’s administration is spending considerable resources keeping enthusiasm for the
Belt and Road Initiative at a fever pitch. Yet China cannot maintain this enthusiasm in
perpetuity. If Russia decides that it is indispensable to making the project work, it can hold out
for concessions.

With respect to the Moscow-Kazan high speed railway, it is clear that this project is not
essential to the overall vision of an intermodal corridor given that the project’s overall impact
on freight movement is modest. Nevertheless, the project has significant symbolic value and
has been frequently cited in Chinese press as an example of successful coordination.
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It has
also been delayed multiple times as the expected price tag has grown. Russia’s reluctance to
commit to building the project may compel China to offer concessions such as greater joint
investment in the Trans-Siberian and Baikal-Amur corridors, and a more prominent role for the
Eurasian Economic Union in settling the investment agenda.

Outside Options

The concept of outside options refers to whether each party in the bargaining
negotiation has other options should the existing negotiation prove fruitless. Russia has made a
significant show of its turn to the East and embrace of China. Of course, the open secret is that
Russia has few other suitors at the moment. China’s promise of an interconnected Eurasia
resulting in closer ties and trading relationships with Russia and Central Asia sounds attractive
to Russia today, but in part this is because Russia’s outside options such as joint economic
planning with Western Europe or the United States are not politically possible. This helps to
explain the almost blanket positive coverage on Russian media regarding China’s intentions
and the surprising lack of expressed concern regarding a loss of sovereignty due to China’s
investments in Central Asia. At some level the Kremlin is concerned with sovereignty, but it
cannot afford to push China away.

For the landlocked countries, Belarus and Kazakhstan, the same dynamic holds. Belarus
remains politically and economically isolated from Europe. It has transactional relations with
its neighbors but few allies outside of Russia. Kazakhstan has better relationships with the
West, but again, due to its landlocked location, has no choice but to maintain cordial relations
with both China and Russia.

By contrast, China has no shortage of suitors. Developing countries around the world see
China and the Chinese development model as their best chance to break the cycle of poverty. If
the Eurasian states were to block the Silk Road, through whatever mechanism, it would be very
bad politically for Xi Jinping. China, however, would recover. It would find numerous other
countries who would be willing to step in and collaborate on infrastructure investment. Thus,
China’s outside options, in addition to its proposal power, serve to strengthen its negotiating
power.

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4.7 Conclusions

This chapter has demonstrated the complex tradeoffs that these nations must make in
deciding whether and how to commit to the BRI over the long run. If the BRI was an
infrastructure project constructed within one country, the economic analysis presented in
chapter 3 would be the principle lens through which the decision would be made. Rather, the
BRI is a series of projects with international, overlapping impacts. Thus, multiple other
dimensions need to be considered.

Public opinion is very important to the potential for long term collaboration. Given the
extent to which the BRI has become China’s principle foreign policy venture in Eurasia,
attitudes toward the BRI are likely to closely mirror overall attitudes toward China and vice
versa. The data shows that citizens of Russia, Kazakhstan and Belarus are positively inclined to
the BRI because they hold a favorable view of China. On the other hand, Russia’s close affinity
for China is at least partially driven by a lack of alternatives. Thus, while Russian support for
China is strong, it is not deep.

Some degree of Sino-skepticism will inevitably emerge once BRI projects move into the
implementation phase. The lack of trust could emerge from multiple sources. A lack of
institutional transparency with respect to rate setting and cost recovery is one potential source
of rent seeking.
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Corruption by customs officials would be another. Given the strong and
entrenched positions of the respective heads of state, opposition is most likely to come from
sub-national actors. Thus, China should pay more attention to statements and positions taken
by political parties and ascendant local politicians to determine whether support is weakening
and how it might need to change course.

Beyond official political statements, a review of media sources notes several worrying
trends for China. First is the sentiment against specific infrastructure projects within Russia
such as the Moscow-Kazan High Speed Rail. Second is growing fear of purported debt-traps
created by China in Sri Lanka and other locations. Perhaps the most worrying threat to
collaboration at the moment is the growth of Sino-phobic Kazakh nationalism. While a review
of the official Russian language press in Kazakhstan displays constant praise of China and the
BRI, Kazakh language sources reveal suspicion and sometimes hostility to Chinese
encroachment on Kazakh sovereignty and territorial integrity. Beyond words, these sentiments
are also manifest in Kazakh policies such as stringent Visa restrictions for Chinese nationals
and strict quotas on Chinese workers and advisors within the country.

The complexity of the commitment strategy and conflicting demands of the parties lends
this problem to a game theory framework. By using the dimensions of bargaining, I illustrate
the different ways in which payoffs, both economic and political, can be framed and weighted
against each other. This structure adds clarity to China’s position and shows the ways in which
the commitment strategy could fall apart. The BRI is designed as an infrastructure initiative,
but it is ultimately a test of trust.

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4.8 Summary of Findings and Recommendations

This dissertation explored the challenges of realizing the BRI through Eurasia from the
perspective of three countries that have the ability to facilitate or complicate China’s vision of
Eurasian transport integration. The dissertation explored this question from four different
dimensions: history, planning, economic geography and politics. While the geographic focus of
the dissertation is Central Asia, China can take specific actions that can improve the chances of
long-term success.

Specifically, this dissertation demonstrates how many regions of within Eurasia do not
stand to directly benefit from the project due to their location. To respond to this fact, China
must curtail its “everybody wins” mantra regarding the BRI and instead examine the ways in
which some industries and regions could be made worse off by the proposed investments while
examining options for compensation. This will require the type of firm and cluster-level
analysis performed in Chapter 3 that takes account of the distance of firms from key corridors.

In addition, China should work with Russia and Kazakhstan to establish rate
transparency for transcontinental shipments and establish a neutral arbiter, on par with the
Surface Transportation Board in the United States, to handle rate disputes. This is essential for
minimizing rent seeking activities that would undermine trust while making the route
uncompetitive with existing maritime and air cargo options.

A somewhat surprising recommendation is the importance of restored Russian
Ukrainian relations in fostering a stable Eurasian network. While Belarus provides an
acceptable option for routing cargo, its current monopoly position provides it with too much
leverage to exploit both Russia and China. Thus, China has a strong incentive to use its current
good standing with Russia to advocate for the normalization of Russia-Ukraine relations,
thereby preventing Belarus from exploiting the situation.

It is important for the overall success of the project to decouple the BRI from vanity
projects like the Moscow-Kazan high speed railroad which are not central to Eurasian freight
connectivity. In the early days of the BRI, fanciful ideas such as a high-speed rail connection
between Moscow and Beijing were useful in communicating the concept of a connected Eurasia.
As the project moves into the implementation phase, however, these projects will increasingly
serve as a distraction.

It is often assumed that Kazakhstan will continue to enthusiastically support the BRI due
to its strong potential for economic gains, yet this dissertation illustrates two key challenges
that are already undermining Kazakh support. The first is a fear of Chinese migration
connected to BRI infrastructure projects while the second is rising anger over the treatment of
ethnic Kazakhs in Xinjiang province. It is crucial that China recognize the dangerous impact of
its crackdown on ethnic Uyghurs in fomenting anti-China sentiment in Kazakhstan. Given that
Kazakhstan is in the midst of its most significant political transition since gaining
independence, China must recognize how its actions could impact whether the country
continues its current internationalist course, or instead turns toward nationalism. For all three
countries, China must reach out to local and regional elites who will command increasing
influence as Putin, Nazarbayev and Lukashenko fade from the limelight.

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In the long run, the Eurasian Belt and Road has the potential to substantially shift the
economic geography of Russia, Kazakhstan and Belarus with cities along key corridors seeing
additional clustering of manufacturing-oriented development. There are three broad scenarios
that could emerge. The Eurasian BRI could remain within its established role – handling niche
cargoes that are fit between the natural markets for sea and air cargo. Alternatively, the current
success could reverse due the removal of Chinese operating subsidies and or a deterioration of
political relationships between the key players. The third scenario would see the corridors
taking a significant share of cargoes currently handled by air and sea. This iteration would have
the most significant impact for Central Asia and Western China but would also require the
greatest level of international coordination. In it unlikely this optimistic scenario can be
realized without improvements to the governance structures for coordinating investments and
regulating rates to prevent rent seeking and free riding.

The immediate impact of freight growth on the corridor will be warehousing and
logistics jobs. Yet, if the corridor improvements are successful in reducing freight transport
costs, they also open the potential for a broader export base and the potential to develop more
sophisticated production over time. This is the corridor’s true potential. While some
underdeveloped regions stand to benefit, some of the most impoverished regions such as South
Kazakhstan and the Southern Caucuses have no real potential to benefit from this project owing
to their location.

It is my hope that this research will help further the discussion of China’s role as a force
for global development, specifically in reconciling the Chinese “infrastructure first” approach to
development versus the current Western prioritization of institutional improvements.
Infrastructure once took a more prominent role within Western development agencies. An
emphasis on infrastructure in development circles is now returning thanks to China.

Given the rash of controversy surrounding Russia in recent years, it is my hope that this
research will provide a framework for scholars seeking to study Russia and Central Asia in
pragmatic rather than ideological terms. While it is true that neither Russia nor the Central
Asian states are democracies, this does not mean that all scholarship regarding these countries
must focus exclusively on the actions and decrees of the heads of state. Now is the time to
refocus on regional and local actors who are playing an increasingly important role in shaping
their own economic destiny.

A number of significant questions remain regarding China’s intents and capabilities. One
of the largest is whether China will be able to overcome institutional weaknesses in target
countries. China has placed a bet that enough investment in transport connectivity will set the
stage for improved regional equality. The extent to which this bet will ultimately lead to better
governance and economic outcomes remains to be seen.

133

Appendix

Table A1: Comparison of Firms Captured by the Trans-Kazakh and Trans-Siberian Corridors

NACE2 Manufacturing Categories
Firms within 200
km of Trans-Kazakh
Firms within 200
km of Trans-Sib. Difference
10. food products 1397 1980 -583
11. beverages 167 247 -80
12. tobacco products 2 2 0
13. textiles 334 403 -69
14. wearing apparel 523 699 -176
15. leather and related products 123 151 -28
16. wood and of products of wood
and cork 527 714 -187
17. paper and paper products 230 281 -51
18. Printing and recorded media 640 916 -276
19. coke and refined petroleum
products 40 62 -22
20. chemicals and chemical
products 659 805 -146
21. basic pharmaceutical
products 235 282 -47
22. rubber and plastic products 869 1138 -269
23. other non-metallic mineral
products 974 1285 -311
24. basic metals 240 297 -57
25. fabricated metal products 1471 1959 -488
26. computer, electronic and
optical products 593 707 -114
27. electrical equipment 591 724 -133
28. machinery and equipment
nec 1055 1318 -263
29. motor vehicles, trailers and
semi-trailers 220 256 -36
30. other transport equipment 127 169 -42

134
31. furniture 416 596 -180
32. Other manufacturing 490 564 -74
Total 11,923 15,555 -3632
*Highlighted = More Complex products

Table A2: Belarus Manufacturing Employment by Oblast

Vitebskaya Gomel'skaya Minskaya Brestskaya Minsk Mogilevskaya Grodnenskaya Total
NACE10 18974 21776 28238 31907 42583 20444 33664 197586
NACE11 1830 1928 2377 2641 4365 1540 2295 16976
NACE12 0 0 0 0 8000 0 921 8921
NACE13 12589 5209 5816 4747 6792 8824 4051 48028
NACE14 3771 5612 2857 7006 7989 2615 5957 35807
NACE15 5701 1352 730 466 5616 1063 1329 16257
NACE16 8389 10407 12395 6208 19267 8050 14413 79129
NACE17 1108 6255 1171 378 5424 924 2046 17306
NACE18 1426 980 594 845 10308 1424 2445 18022
NACE19 10930 4777 2026 0 2012 0 0 19745
NACE20 6599 2170 3924 2344 5194 8166 6246 34643
NACE21 477 0 779 0 2839 0 60 4155
NACE22 2308 7355 3796 2256 9606 14133 2492 41946
NACE23 7832 9987 5846 7697 10038 3701 9976 55077
NACE24 449 14086 1126 3 893 3415 463 20435
NACE25 4591 19537 8096 4692 19805 5351 8434 70506
NACE26 828 1560 1149 2241 123967 3 600 130348
NACE27 736 2720 687 8405 17062 296 1065 30971
NACE28 7285 8544 17352 9457 44497 13238 4993 105366
NACE29 1416 5911 2656 2514 66698 5893 6380 91468
NACE30 1230 2491 0 925 1432 1390 2110 9578
NACE31 1454 8264 6333 14834 5058 2711 6983 45637
NACE32 14 0 3147 0 1302 0 174 4637
Total 99937 140921 111095 109566 420747 103181 117097 1102544
Unsophisticated 67% 57% 57% 63% 28% 49% 64% 48%
Sophisticated 33% 43% 43% 37% 72% 51% 36% 52%

135

Table A3: Russian Manufacturing Firms by Region

Region in country
Percentage of
Total
Manufacturing
Firms
Central federal region
Moscow City 12.5%
Northwest federal region
Saint Petersburg 7.7%
Central federal region
Moscow region 6.5%
Ural federal region
Sverdlovsk region 4.2%
Siberian federal region
Novosibirsk region 3.3%
Ural federal region
Chelyabinsk region 3.1%
Volga federal region
Republic of Tatarstan 3.0%
Volga federal region
Nizhni Novgorod region 2.7%
Volga federal region
Samara region 2.6%
South federal region
Krasnodar Territory 2.6%
South federal region
Rostov region 2.3%
Volga federal region
Republic of Bashkortostan 2.0%
Volga federal region
Perm Territory 1.8%
Siberian federal region
Altai Territory 1.8%
Siberian federal region
Krasnoyarsk Territory 1.7%
Central federal region
Vladimir region 1.4%
Volga federal region
Kirov region 1.4%
Central federal region
Voronezh region 1.3%
Central federal region
Ivanovo region 1.3%

136
Volga federal region
Republic of Udmurtia 1.3%
Central federal region
Yaroslavl region 1.3%
Northwest federal region
Kaliningrad region 1.3%
Volga federal region
Saratov region 1.2%
Siberian federal region
Irkutsk region 1.2%
Central federal region
Tula region 1.2%
Siberian federal region
Kemerovo region 1.1%
Siberian federal region
Omsk region 1.1%
Central federal region
Tver region 1.1%
Central federal region
Kaluga region 1.1%
Ural federal region
Tyumen region 1.1%
Northwest federal region
Leningrad region 1.1%
North Caucasian Federal District
Stavropol Territory 1.1%
South federal region
Volgograd region 1.0%
Volga federal region
Ulyanovsk region 1.0%
Central federal region
Ryazan region 1.0%
Volga federal region
Chuvashi Republic 1.0%
Central federal region
Belgorod region 1.0%
Far Eastern federal region
Primorsk Territory 0.9%
Northwest federal region
Vologda region 0.9%
Volga federal region
Penza region 0.9%
Siberian federal region
Tomsk region 0.8%
Central federal region
Smolensk region 0.7%

137
Central federal region
Kostroma region 0.7%
Volga federal region
Orenburg region 0.7%
Central federal region
Bryansk region 0.7%
Volga federal region
Republic of Mariy-El 0.7%
Central federal region
Lipetsk region 0.6%
Far Eastern federal region
Khabarovsk Territory 0.6%
Northwest federal region
Pskov region 0.5%
Central federal region
Kursk region 0.5%
Northwest federal region
Arkhangelsk region 0.5%
Central federal region
Orel region 0.5%
Northwest federal region
Novgorod region 0.5%
Central federal region
Tambov region 0.4%
Northwest federal region
Republic of Karelia 0.4%
Ural federal region
Khanty-Mansijsk Autonomous region 0.4%
Ural federal region
Kurgan region 0.4%
Far Eastern federal region
Republic of Sakha (Yakutia) 0.3%
Volga federal region
Republic of Mordovia 0.3%
South federal region
Astrakhan region 0.3%
Far Eastern federal region
Sakhalin region 0.3%
North Caucasian Federal District
Kabardino-Balkarian Republic 0.3%
Northwest federal region
Murmansk region 0.3%
Siberian federal region
Republic of Buryatia 0.3%
Northwest federal region
Komi Republic 0.3%

138
Far Eastern federal region
Amur region 0.3%
Siberian federal region
Republic of Khakassia 0.3%
North Caucasian Federal District
Republic of Daghestan 0.2%
South federal region
Republic of Adygeya 0.2%
North Caucasian Federal District
Republic of North Ossetia-Alania 0.2%
Siberian federal region
Zabaykalsky Territory 0.2%
South federal region
Karachaevo-Cherkessian Republic 0.1%
Far Eastern federal region
Kamchatka Territory 0.1%
Siberian federal region
Republic of Altai 0.1%
Ural federal region
Yamalo-Nenets Autonomous region 0.1%
Far Eastern federal region
Jewish Autonomous District 0.1%
North Caucasian Federal District
Chechen Republic 0.1%
Far Eastern federal region
Magadan region 0.1%
South federal region
Republic of Kalmykia 0.0%
Siberian federal region
Republic of Tuva 0.0%
North Caucasian Federal District
Republic of Ingushetia 0.0%
Northwest federal region
Nenetsk Autonomous district 0.0%
Far Eastern federal region
Chukotka Autonomous District 0.0%

139
Table A4: Breakdown of Russian Firms by Region with Percent Sophisticated and Percent
Unsophisticated

Region in
country
Percent
age of
firms
Num
ber
of
Firm
s
Revenu
e by
Region
Sophistic
ated
Industrie
s
Non-
Sophistic
ated
Industrie
s
Percent
Sophistic
ated
Percent
Unsophisti
cated
Ural
federal
region
Chelyabin
sk region
3.1% 3997 $19,074,
536
$14,631,9
80
$4,442,55
6
76.7% 23.3%
Ural
federal
region
Tyumen
region
1.1% 1391 $12,362,
671
$1,578,84
7
$10,783,8
24
12.8% 87.2%
South
federal
region
Volgograd
region
1.0% 1346 $10,918,
272
$2,326,09
1
$8,592,18
1
21.3% 78.7%
Volga
federal
region
Nizhni
Novgorod
region
2.7% 3493 $20,961,
380
$8,783,81
4
$12,177,5
66
41.9% 58.1%
Volga
federal
region
Perm
Territory
1.8% 2367 $12,072,
801
$4,132,15
6
$7,940,64
5
34.2% 65.8%
Central
federal
region
Kaluga
region
1.1% 1398 $12,739,
933
$10,017,9
67
$2,721,96
6
78.6% 21.4%
Volga
federal
region
Samara
region
2.6% 3338 $15,124,
080
$10,997,0
47
$4,127,03
3
72.7% 27.3%

140
Central
federal
region
Moscow
12.5% 1618
1
$87,374,
490
$52,271,5
48
$35,102,9
42
59.8% 40.2%
Siberian
federal
region
Kemerovo
region
1.1% 1472 $8,402,8
45
$2,076,08
8
$6,326,75
7
24.7% 75.3%
Northwes
t federal
region
Saint
Petersbur
g
7.7% 1005
3
$42,242,
164
$26,313,5
38
$15,928,6
26
62.3% 37.7%
Volga
federal
region
Republic
of
Bashkorto
stan
2.0% 2531 $11,410,
743
$6,354,13
4
$5,056,60
9
55.7% 44.3%
Volga
federal
region
Republic
of
Tatarstan
3.0% 3909 $20,558,
817
$12,872,1
54
$7,686,66
3
62.6% 37.4%
Ural
federal
region
Sverdlovs
k region
4.2% 5402 $25,777,
137
$9,651,13
2
$16,126,0
05
37.4% 62.6%
Northwes
t federal
region
Kaliningr
ad region
1.3% 1659 $7,984,6
36
$4,564,82
6
$3,419,81
0
57.2% 42.8%
South
federal
region
Krasnoda
r
Territory
2.6% 3321 $14,691,
993
$3,087,90
2
$11,604,0
91
21.0% 79.0%
Central
federal
region
6.5% 8375 $42,529,
395
$25,825,4
63
$16,703,9
32
60.7% 39.3%

141
Moscow
region
South
federal
region
Rostov
region
2.3% 3002 $12,836,
351
$6,307,19
8
$6,529,15
3
49.1% 50.9%
Northwes
t federal
region
Novgorod
region
0.5% 607 $3,574,8
68
$2,426,32
9
$1,148,53
9
67.9% 32.1%
Siberian
federal
region
Irkutsk
region
1.2% 1519 $4,756,8
48
$1,502,27
6
$3,254,57
2
31.6% 68.4%
Central
federal
region
Belgorod
region
1.0% 1263 $7,969,7
91
$1,592,39
7
$6,377,39
4
20.0% 80.0%
Volga
federal
region
Orenburg
region
0.7% 911 $3,165,7
41
$825,203 $2,340,53
8
26.1% 73.9%
Siberian
federal
region
Omsk
region
1.1% 1454 $4,984,9
83
$1,502,45
3
$3,482,53
0
30.1% 69.9%
Northwes
t federal
region
Leningrad
region
1.1% 1387 $11,461,
733
$5,176,87
9
$6,284,85
4
45.2% 54.8%
Northwes
t federal
region
Arkhangel
sk region
0.5% 646 $3,254,6
59
$1,507,05
6
$1,747,60
3
46.3% 53.7%
Siberian
federal
region
Altai
Territory
1.8% 2271 $5,011,7
88
$2,066,91
3
$2,944,87
5
41.2% 58.8%

142
Siberian
federal
region
Krasnoya
rsk
Territory
1.7% 2195 $6,552,2
95
$2,363,49
8
$4,188,79
7
36.1% 63.9%
Siberian
federal
region
Republic
of
Khakassia
0.3% 327 $1,473,5
26
$66,203 $1,407,32
3
4.5% 95.5%
Volga
federal
region
Republic
of
Udmurtia
1.3% 1689 $4,460,6
99
$3,229,21
9
$1,231,48
0
72.4% 27.6%
Central
federal
region
Tula
region
1.2% 1504 $6,348,0
29
$4,850,63
6
$1,497,39
3
76.4% 23.6%
Northwes
t federal
region
Komi
Republic
0.3% 339 $1,589,3
82
$154,661 $1,434,72
1
9.7% 90.3%
Far
Eastern
federal
region
Khabarov
sk
Territory
0.6% 829 $2,144,3
26
$1,009,95
2
$1,134,37
4
47.1% 52.9%
Central
federal
region
Yaroslavl
region
1.3% 1681 $5,727,0
75
$4,107,41
3
$1,619,66
2
71.7% 28.3%
North
Caucasian
Federal
District
Stavropol
Territory
1.1% 1378 $3,866,3
00
$2,442,43
8
$1,423,86
2
63.2% 36.8%

143
Ural
federal
region
Khanty-
Mansijsk
Autonom
ous
region
0.4% 532 $1,775,0
46
$361,158 $1,413,88
8
20.3% 79.7%
Northwes
t federal
region
Murmans
k region
0.3% 352 $908,14
9
$76,137 $832,012 8.4% 91.6%
Volga
federal
region
Ulyanovs
k region
1.0% 1330 $2,944,9
02
$2,022,68
6
$922,216 68.7% 31.3%
Central
federal
region
Voronezh
region
1.3% 1727 $6,393,2
47
$2,616,38
4
$3,776,86
3
40.9% 59.1%
North
Caucasian
Federal
District
Kabardin
o-
Balkarian
Republic
0.3% 361 $1,159,5
09
$693,788 $465,721 59.8% 40.2%
Volga
federal
region
Saratov
region
1.2% 1608 $5,706,7
12
$2,346,56
7
$3,360,14
5
41.1% 58.9%
Central
federal
region
Tver
region
1.1% 1408 $3,739,5
60
$2,341,40
4
$1,398,15
6
62.6% 37.4%
Far
Eastern
federal
region
Primorsk
Territory
0.9% 1219 $2,024,5
98
$1,124,73
3
$899,865 55.6% 44.4%

144
Central
federal
region
Ryazan
region
1.0% 1295 $4,128,1
14
$2,255,03
0
$1,873,08
4
54.6% 45.4%
Northwes
t federal
region
Pskov
region
0.5% 678 $1,478,0
78
$600,788 $877,290 40.6% 59.4%
Central
federal
region
Bryansk
region
0.7% 887 $2,451,3
48
$1,514,30
0
$937,048 61.8% 38.2%
Siberian
federal
region
Republic
of
Buryatia
0.3% 351 $870,39
4
$496,344 $374,050 57.0% 43.0%
Central
federal
region
Lipetsk
region
0.6% 835 $3,048,4
04
$1,367,18
1
$1,681,22
3
44.8% 55.2%
Northwes
t federal
region
Vologda
region
0.9% 1144 $2,623,0
42
$848,607 $1,774,43
5
32.4% 67.6%
Far
Eastern
federal
region
Republic
of Sakha
(Yakutia)
0.3% 448 $922,24
1
$381,831 $540,410 41.4% 58.6%
Siberian
federal
region
Novosibir
sk region
3.3% 4253 $6,343,0
10
$3,297,37
3
$3,045,63
7
52.0% 48.0%
Central
federal
region
0.7% 919 $1,827,0
13
$770,985 $1,056,02
8
42.2% 57.8%

145
Kostroma
region
Central
federal
region
Kursk
region
0.5% 678 $3,262,5
63
$1,345,60
2
$1,916,96
1
41.2% 58.8%
Volga
federal
region
Republic
of
Mordovia
0.3% 436 $2,312,4
48
$993,934 $1,318,51
4
43.0% 57.0%
Ural
federal
region
Yamalo-
Nenets
Autonom
ous
region
0.1% 104 $360,04
5
$11,929 $348,116 3.3% 96.7%
Central
federal
region
Vladimir
region
1.4% 1837 $5,024,0
42
$3,067,34
9
$1,956,69
3
61.1% 38.9%
Northwes
t federal
region
Republic
of Karelia
0.4% 542 $976,08
1
$149,431 $826,650 15.3% 84.7%
Siberian
federal
region
Tomsk
region
0.8% 1043 $2,416,7
20
$1,415,29
9
$1,001,42
1
58.6% 41.4%
Far
Eastern
federal
region
Kamchatk
a
Territory
0.1% 168 $612,05
6
$18,858 $593,198 3.1% 96.9%
Far
Eastern
federal
region
0.1% 74 $299,10
8
$47,877 $251,231 16.0% 84.0%

146
Magadan
region
Central
federal
region
Orel
region
0.5% 644 $1,534,1
99
$943,731 $590,468 61.5% 38.5%
Siberian
federal
region
Zabaykals
ky
Territory
0.2% 269 $387,68
2
$255,932 $131,750 66.0% 34.0%
Central
federal
region
Smolensk
region
0.7% 940 $2,717,7
35
$1,598,96
5
$1,118,77
0
58.8% 41.2%
Ural
federal
region
Kurgan
region
0.4% 501 $1,030,2
05
$756,820 $273,385 73.5% 26.5%
South
federal
region
Karachae
vo-
Cherkessi
an
Republic
0.1% 181 $603,53
8
$453,516 $150,022 75.1% 24.9%
Volga
federal
region
Chuvashi
Republic
1.0% 1281 $2,521,0
22
$1,852,02
3
$668,999 73.5% 26.5%
Central
federal
region
Tambov
region
0.4% 582 $1,445,5
14
$517,478 $928,036 35.8% 64.2%
Volga
federal
region
Kirov
region
1.4% 1755 $2,406,1
07
$1,158,40
7
$1,247,70
0
48.1% 51.9%

147
Central
federal
region
Ivanovo
region
1.3% 1717 $2,011,2
39
$748,982 $1,262,25
7
37.2% 62.8%
Volga
federal
region
Republic
of Mariy-
El
0.7% 860 $1,441,0
94
$705,252 $735,842 48.9% 51.1%
Far
Eastern
federal
region
Amur
region
0.3% 329 $452,20
3
$77,672 $374,531 17.2% 82.8%
Volga
federal
region
Penza
region
0.9% 1113 $2,307,7
32
$990,961 $1,316,77
1
42.9% 57.1%
North
Caucasian
Federal
District
Republic
of
Daghesta
n
0.2% 309 $462,49
0
$229,741 $232,749 49.7% 50.3%
South
federal
region
Republic
of
Adygeya
0.2% 291 $592,11
7
$120,896 $471,221 20.4% 79.6%
Siberian
federal
region
Republic
of Altai
0.1% 119 $148,21
4
$13,884 $134,330 9.4% 90.6%
North
Caucasian
Federal
District
Chechen
Republic
0.1% 82 $117,21
1
$87,079 $30,132 74.3% 25.7%

148
Siberian
federal
region
Republic
of Tuva
0.0% 49 $86,757 $42,942 $43,815 49.5% 50.5%
North
Caucasian
Federal
District
Republic
of North
Ossetia-
Alania
0.2% 273 $294,88
4
$78,483 $216,401 26.6% 73.4%
Far
Eastern
federal
region
Jewish
Autonom
ous
District
0.1% 87 $91,758 $56,842 $34,916 61.9% 38.1%
Far
Eastern
federal
region
Sakhalin
region
0.3% 372 $305,70
9
$89,607 $216,102 29.3% 70.7%
South
federal
region
Astrakhan
region
0.3% 391 $224,83
7
$103,290 $121,547 45.9% 54.1%
Northwes
t federal
region
Nenetsk
Autonom
ous
district
0.0% 21 $19,009 $4,413 $14,596 23.2% 76.8%
South
federal
region
Republic
of
Kalmykia
0.0% 50 $21,795 $8,507 $13,288 39.0% 61.0%
North
Caucasian
0.0% 47 $19,596 $2,273 $17,323 11.6% 88.4%

149
Federal
District
Republic
of
Ingusheti
a
Far
Eastern
federal
region
Chukotka
Autonom
ous
District
0.0% 14 $4,600 $0 $4,600 0.0% 100.0%

Table A5: Manufacturing Revenue by Region in Thousands of Dollars

Region in country
Revenue by
Region Last
Available
year Percent by region
Central federal region
Moscow City $87,374,490 16.2%
Central federal region
Moscow region $42,529,395 7.9%
Northwest federal region
Saint Petersburg $42,242,164 7.8%
Ural federal region
Sverdlovsk region $25,777,137 4.8%
Volga federal region
Nizhni Novgorod region $20,961,380 3.9%
Volga federal region
Republic of Tatarstan $20,558,817 3.8%
Ural federal region
Chelyabinsk region $19,074,536 3.5%
Volga federal region
Samara region $15,124,080 2.8%
South federal region
Krasnodar Territory $14,691,993 2.7%
South federal region
Rostov region $12,836,351 2.4%
Central federal region
Kaluga region $12,739,933 2.4%
Ural federal region
Tyumen region $12,362,671 2.3%

150
Volga federal region
Perm Territory $12,072,801 2.2%
Northwest federal region
Leningrad region $11,461,733 2.1%
Volga federal region
Republic of Bashkortostan $11,410,743 2.1%
South federal region
Volgograd region $10,918,272 2.0%
Siberian federal region
Kemerovo region $8,402,845 1.6%
Northwest federal region
Kaliningrad region $7,984,636 1.5%
Central federal region
Belgorod region $7,969,791 1.5%
Siberian federal region
Krasnoyarsk Territory $6,552,295 1.2%
Central federal region
Voronezh region $6,393,247 1.2%
Central federal region
Tula region $6,348,029 1.2%
Siberian federal region
Novosibirsk region $6,343,010 1.2%
Central federal region
Yaroslavl region $5,727,075 1.1%
Volga federal region
Saratov region $5,706,712 1.1%
Central federal region
Vladimir region $5,024,042 0.9%
Siberian federal region
Altai Territory $5,011,788 0.9%
Siberian federal region
Omsk region $4,984,983 0.9%
Siberian federal region
Irkutsk region $4,756,848 0.9%
Volga federal region
Republic of Udmurtia $4,460,699 0.8%
Central federal region
Ryazan region $4,128,114 0.8%
North Caucasian Federal District
Stavropol Territory $3,866,300 0.7%
Central federal region
Tver region $3,739,560 0.7%
Northwest federal region
Novgorod region $3,574,868 0.7%
Central federal region
Kursk region $3,262,563 0.6%

151
Northwest federal region
Arkhangelsk region $3,254,659 0.6%
Volga federal region
Orenburg region $3,165,741 0.6%
Central federal region
Lipetsk region $3,048,404 0.6%
Volga federal region
Ulyanovsk region $2,944,902 0.5%
Central federal region
Smolensk region $2,717,735 0.5%
Northwest federal region
Vologda region $2,623,042 0.5%
Volga federal region
Chuvashi Republic $2,521,022 0.5%
Central federal region
Bryansk region $2,451,348 0.5%
Siberian federal region
Tomsk region $2,416,720 0.4%
Volga federal region
Kirov region $2,406,107 0.4%
Volga federal region
Republic of Mordovia $2,312,448 0.4%
Volga federal region
Penza region $2,307,732 0.4%
Far Eastern federal region
Khabarovsk Territory $2,144,326 0.4%
Far Eastern federal region
Primorsk Territory $2,024,598 0.4%
Central federal region
Ivanovo region $2,011,239 0.4%
Central federal region
Kostroma region $1,827,013 0.3%
Ural federal region
Khanty-Mansijsk Autonomous
region $1,775,046 0.3%
Northwest federal region
Komi Republic $1,589,382 0.3%
Central federal region
Orel region $1,534,199 0.3%
Northwest federal region
Pskov region $1,478,078 0.3%
Siberian federal region
Republic of Khakassia $1,473,526 0.3%
Central federal region
Tambov region $1,445,514 0.3%
Volga federal region
Republic of Mariy-El $1,441,094 0.3%

152
North Caucasian Federal District
Kabardino-Balkarian Republic $1,159,509 0.2%
Ural federal region
Kurgan region $1,030,205 0.2%
Northwest federal region
Republic of Karelia $976,081 0.2%
Far Eastern federal region
Republic of Sakha (Yakutia) $922,241 0.2%
Northwest federal region
Murmansk region $908,149 0.2%
Siberian federal region
Republic of Buryatia $870,394 0.2%
Far Eastern federal region
Kamchatka Territory $612,056 0.1%
South federal region
Karachaevo-Cherkessian Republic $603,538 0.1%
South federal region
Republic of Adygeya $592,117 0.1%
North Caucasian Federal District
Republic of Daghestan $462,490 0.1%
Far Eastern federal region
Amur region $452,203 0.1%
Siberian federal region
Zabaykalsky Territory $387,682 0.1%
Ural federal region
Yamalo-Nenets Autonomous
region $360,045 0.1%
Far Eastern federal region
Sakhalin region $305,709 0.1%
Far Eastern federal region
Magadan region $299,108 0.1%
North Caucasian Federal District
Republic of North Ossetia-Alania $294,884 0.1%
South federal region
Astrakhan region $224,837 0.0%
Siberian federal region
Republic of Altai $148,214 0.0%
North Caucasian Federal District
Chechen Republic $117,211 0.0%
Far Eastern federal region
Jewish Autonomous District $91,758 0.0%
Siberian federal region
Republic of Tuva $86,757 0.0%
South federal region
Republic of Kalmykia $21,795 0.0%
North Caucasian Federal District
Republic of Ingushetia $19,596 0.0%

153
Northwest federal region
Nenetsk Autonomous district $19,009 0.0%
Far Eastern federal region
Chukotka Autonomous District $4,600 0.0%
TOTAL $538,257,964 100.0%

Table A6: Exports of Innovative and Technologically Unchanged Goods and Services by Economic
Activity

Source: Higher School of Economics

154

Source:
https://www.hse.ru/data/2018/01/17/1163275377/Indicators_of_Innovation_in_the_Rus
sia n_Federation_2016.pdf

155

Table A7: Kazakh Manufacturing Employment by Region and NACE Category

NACE
Cat.
City of
Almat
y
Astan
a
KOS NK
Z
SK
Z
AT
Y
ZHAM EKZ AKM WKZ PAV KYZ KARAG MANG
10 20724 4097 8658 512
0
83
87
734 3900 9568 4674 2685 4327 1506 7184 1124
11 5191 518 1463 215 23
37
124 451 561 736 475 391 31 309 397
12 24 3 3 0 16 0 0 0 0 0 0 0 0 0
13 1142 370 298 109 73
97
254 227 351 963 180 283 77 224 22
14 3557 994 563 287 20
06
311 346 969 307 213 421 203 1578 494
15 643 65 29 39 34
1
6 612 277 36 36 0 21 77 186
16 1600 380 179 247 30
9
47 24 1399 303 109 191 112 527 22
17 2235 290 178 34 67
5
30 53 723 73 25 475 23 470 60
18 6216 1496 317 135 69
2
79 543 415 251 216 294 83 632 241
19 1614 300 0 170 13
74
127
8
884 51 35 492 2573 474 519 1690
20 2700 809 94 108 94 350 2499 1859 2286 295 1172 431 1063 1528
21 3350 129 8 19 8 0 165 122 109 0 97 18 370 26
22 4704 2894 630 685 63
0
641 682 1880 446 537 981 347 2022 950
23 10032 6172 2721 470 27
21
117
6
2279 5580 2867 2500 2641 1073 4370 1852
24 4329 2520 623 255 62
3
45 2179 2271
0
2204 737 1695
7
32 57352 533
25 7451 3560 802 352 80
2
708 1458 3038 435 404 1824 391 4516 895
26 1808 496 6 21 6 45 81 113 161 123 12 21 51 11
27 2027 556 14 765 14 110 93 1332 82 128 723 6 1052 109
28 2333 1085 2094 202
0
20
94
674 134 2106 3224 1438 1104 25 3308 541
29 439 43 772 45 77
2
508 6 297 200 0 51 0 57 18
30 179 1601 25 748 25 18 0 560 146 951 1580 0 121 11
31 3596 1316 243 140 24
3
121 191 619 306 379 598 100 876 124
32 3275 921 57 135 57 293 24 741 145 130 125 21 341 92

89169 30615 1978
0
121
19
31
62
3
755
5
16831 5527
1
1998
9
1205
3
3682
3
4998 87019 10926
USoph 57% 40% 63% 56
%
77
%
40
%
56% 68% 49% 46% 72% 53% 80% 45%
Soph 43% 54% 36% 38
%
23
%
60
%
44% 31% 50% 46% 24% 47% 20% 55%

156

Table A8: Belarus Breakdown of Manufacturing Employment by Oblast and NACE Category

Vitebska
ya
Gomel'ska
ya
Minskay
a
Brestska
ya Minsk
Mogilevska
ya
Grodnenska
ya
NACE10 19.0% 15.5% 25.4% 29.1%
10.1
% 19.8% 28.7%
NACE11 1.8% 1.4% 2.1% 2.4% 1.0% 1.5% 2.0%
NACE12 0.0% 0.0% 0.0% 0.0% 1.9% 0.0% 0.8%
NACE13 12.6% 3.7% 5.2% 4.3% 1.6% 8.6% 3.5%
NACE14 3.8% 4.0% 2.6% 6.4% 1.9% 2.5% 5.1%
NACE15 5.7% 1.0% 0.7% 0.4% 1.3% 1.0% 1.1%
NACE16 8.4% 7.4% 11.2% 5.7% 4.6% 7.8% 12.3%
NACE17 1.1% 4.4% 1.1% 0.3% 1.3% 0.9% 1.7%
NACE18 1.4% 0.7% 0.5% 0.8% 2.4% 1.4% 2.1%
NACE19 10.9% 3.4% 1.8% 0.0% 0.5% 0.0% 0.0%
NACE20 6.6% 1.5% 3.5% 2.1% 1.2% 7.9% 5.3%
NACE21 0.5% 0.0% 0.7% 0.0% 0.7% 0.0% 0.1%
NACE22 2.3% 5.2% 3.4% 2.1% 2.3% 13.7% 2.1%
NACE23 7.8% 7.1% 5.3% 7.0% 2.4% 3.6% 8.5%
NACE24 0.4% 10.0% 1.0% 0.0% 0.2% 3.3% 0.4%
NACE25 4.6% 13.9% 7.3% 4.3% 4.7% 5.2% 7.2%
NACE26 0.8% 1.1% 1.0% 2.0%
29.5
% 0.0% 0.5%
NACE27 0.7% 1.9% 0.6% 7.7% 4.1% 0.3% 0.9%
NACE28 7.3% 6.1% 15.6% 8.6%
10.6
% 12.8% 4.3%
NACE29 1.4% 4.2% 2.4% 2.3%
15.9
% 5.7% 5.4%
NACE30 1.2% 1.8% 0.0% 0.8% 0.3% 1.3% 1.8%
NACE31 1.5% 5.9% 5.7% 13.5% 1.2% 2.6% 6.0%
NACE32 0.0% 0.0% 2.8% 0.0% 0.3% 0.0% 0.1%
Total 1 1 1 1 1 1 1
Unsophisticat
ed 67% 57% 57% 63% 28% 49% 64%
Sophisticated 33% 43% 43% 37% 72% 51% 36%

157

Figure A1: Location of Xinjiang Manufacturing Firms in relation to main Eurasian Corridor
Through Kazakhstan

Source: Geocoded from Street Address, BvD Data

158

Figure A2: Russian Producers of Perishable Goods (NACE 0121-0150)

Figure A3: Russian warehouse under construction

Location
(56.37593 41.36143)

159

Table A9: Regional GDP Per Capita comparison of Russia, Kazakhstan and China

Sources: Author’s calculations using ROSSTAT, China National Statistics Bureau, KAZSTAT,
2016

Region
GDP Per
Capita
(2016) Country
Silk Road
Core Region
Manufacturing
as percent of
employment
Republic of Ingushetia $1,596 RU

Republic of Chechnya $1,775 RU

Sevastopol (claimed by
Russia) $2,270 RU

Kabaridino-Balkaria Republic $2,298 RU

Karachaevo Cherkessiya
Republic $2,341 RU

17.7%
Republic of Tuva $2,462 RU Y 7.1%
Republic of Crimea (claimed
by Russia) $2,473 RU

Ivanovo Oblast $2,616 RU Y 18.5%
North Ossetia Republic $2,667 RU

Republic of Dagestan $2,947 RU

South Kazakhstan $2,965 KZ

Kamlikia Republic $3,011 RU

4.5%
Adygeya Republic $3,019 RU

13.6%
Buryatia Republic $3,029 RU Y 12.6%
Altai Krai $3,145 RU Y 17.1%
Chuvash Republic $3,163 RU Y 21.4%
Altai Republic $3,191 RU Y 5.6%
Zhambylskaya $3,231 KZ

Pskov Oblast $3,351 RU

16.1%
Kirov Oblast $3,360 RU

17.0%
Kurgan Oblast $3,378 RU

19.9%
Almatinskaya $3,387 KZ Y

Stavropol Krai $3,477 RU

Bryansk Oblast $3,494 RU

17.4%
Mariy-El Republic $3,501 RU Y 22.9%

160
Zabaikalsky Krai $3,635 RU

8.8%
Mordovia Republic $3,666 RU

19.4%
Kostroma Oblast $3,697 RU

20.9%
Penzenskaya Oblast $3,763 RU

20.1%
Ulyanovskaya Oblast $3,909 RU

19.4%
Saratovskaya Oblast $3,943 RU

15.7%
Smolensk Oblast $4,103 RU

16.3%
Tverskaya Oblast $4,130 RU

21.6%
Vladimirskaya Oblast $4,206 RU

25.1%
Orlovskaya Oblast $4,223 RU

19.6%
Jewish Autonomous Oblast $4,243 RU Y 10.8%
Gansu Province $4,310 CN Y

Volgogradskaya Oblast $4,374 RU

16.6%
Tambovskaya Oblast $4,454 RU

14.1%
Rzyanskaya Oblast $4,464 RU

13.5%
Rostovskaya Oblast $4,488 RU

14.0%
Kemerovskaya Oblast $4,728 RU Y 15.5%
Omskaya Oblast $4,737 RU Y 17.5%
Yunnan $4,843 CN Y

Kurskaya Oblast $4,860 RU

16.8%
Severo-Kazakhstanskaya $4,928 KZ Y

Republic of Bashkortostan $4,939 RU Y 15.4%
Astrakhanskaya Oblast $4,970 RU

6.9%
Republic of Khakassia $5,077 RU

13.9%
Tulskaya Oblast $5,150 RU

23.6%
Kyzylordinskaya $5,171 KZ

Guizhou $5,176 CN

Kostanaiskaya $5,250 KZ Y

Udmurtskaya Oblast $5,323 RU Y 16.2%
Amurskaya Oblast $5,350 RU

6.4%
Chelyabinskaya Oblast $5,383 RU

18.4%
Voronezhskaya Oblast $5,388 RU

13.5%
Nizhegorodskaya Oblast $5,432 RU

19.6%
Krasnodarsky Krai $5,438 RU

9.7%
Tibet $5,442 CN Y

Kaluzhkaya Oblast $5,515 RU

28.5%
Yaroslavskaya Oblast $5,525 RU

17.8%
Akmolinskaya $5,527 KZ Y

Shanxi $5,538 CN Y

Republic of Karelia $5,553 RU

13.0%
Primorskii Krai $5,720 RU

6.4%

161
Orenburgskaya Oblast $5,794 RU

17.5%
Kaliningradskaya Oblast $5,836 RU

15.3%
Novosibirskaya Oblast $5,852 RU

11.1%
Guangxi $5,916 CN

Samarskaya Oblast $5,948 RU

15.4%
Novgorodskaya Oblast $5,952 RU

20.3%
Lipetskaya Oblast $6,081 RU

18.6%
Vostochno-Kazakhstanskaya $6,098 KZ Y

Vologodskaya Oblast $6,130 RU

13.9%
Anhui $6,155 CN

Permskii Krai $6,196 RU

15.7%
Sichuan $6,228 CN Y

Xinjiang $6,287 CN Y

Jiangxi $6,294 CN

Heilongjiang $6,327 CN Y

Irkutskaya Oblast $6,627 RU

11.5%
Henan $6,634 CN Y

Hebei $6,709 CN Y

Tomskaya Oblast $6,755 RU

11.4%
Qinghai $6,773 CN Y

Sverdlovskaya Oblast $6,830 RU Y 18.2%
Hainan $6,905 CN

Belgorodskaya Oblast $7,040 RU

19.3%
Khabarovskii Krai $7,147 RU

6.6%
Hunan $7,226 CN

Moscovskaya Oblast $7,231 RU

18.6%
Ningxia $7,335 CN

Republic of Tatarstan $7,472 RU Y 20.3%
Aktubinskaya $7,493 KZ Y

Leningradskaya Oblast $7,652 RU

23.6%
Pavlodarskaya $7,925 KZ

Liaoning $7,940 CN

Shaanxi $7,950 CN Y

Karagandinskaya $8,155 KZ Y

Murmanskaya Oblast $8,378 RU

9.9%
Jilin $8,448 CN Y

Hubei $8,672 CN Y

Arkhangelskaya Oblast $8,732 RU

20.5%
Chongqing $9,093 CN Y

Krasnayarski Krai $9,206 RU Y 11.9%
Kamchatski Krai $9,390 RU

162
Republic of Komi $9,577 RU

8.0%
Zapadno-Kazakhstanskaya $9,667 KZ Y

City of Saint Petersburg $10,649 RU

12.5%
Shandong $10,685 CN

Inner Mongolia $11,239 CN Y

Guangdong $11,486 CN

Fujian $11,620 CN

Mangistauskaya $11,797 KZ

Zhejiang $13,207 CN

Republic of Sakha (Yakutia) $13,509 RU

Magadanskaya Oblast $15,048 RU

4.6%
Jiangsu $15,117 CN

Astana city $16,031 KZ Y

City of Moscow $17,303 RU

7.5%
Tianjin $17,889 CN

Shanghai $18,196 CN

Beijing $18,458 CN

Almaty city $18,661 KZ

Chukotskii Autonomous Okrug $19,782 RU

1.4%
Sakhalinskaya Oblast $23,556 RU

19.0%
Tyumenskaya Oblast $24,338 RU

9.7%
Atyrauskaya $26,305 KZ

163

Table A10: China – BRI freight flows by commodity 2016 (MT)

Source: World Bank

Black
Sea
Eastern
Europe
South
Europe
West
Europe
Central
Asia
SE Asia
South
Asia
Russia Total
China exports

Agricultural products 0.2 0.1 0.4 1.5 0.1 2.2 0.7 0.5 5.8
Minerals 0.5 0.1 0.5 1.9 0.1 9.5 10.3 0.3 23.1
Chemicals 1.1 0.4 1.3 3.2 0.3 13.3 12.8 0.9 33.3
Plastics, rubber, leather 1.3 0.5 1.6 5.5 0.6 6.0 4.2 1.1 20.8
Textiles, footwear, clothing 0.9 0.4 1.4 4.0 0.9 3.6 3.1 0.9 15.1
Stone, ceramics, glass 0.7 0.4 1.2 4.0 0.3 7.8 3.5 0.6 18.6
Metals 3.1 0.8 4.3 6.6 1.0 31.1 11.8 1.5 60.2
Machinery 1.9 1.2 2.8 9.2 0.6 9.1 6.5 2.0 33.3
Miscellaneous 0.3 0.5 1.1 4.8 0.1 2.0 0.9 0.3 10.1
Perishables 0.1 0.1 0.3 0.8 0.2 3.8 0.7 0.8 6.9
Total 9.9 4.4 14.8 41.5 4.3 88.4 54.6 9.0 227.0
China imports

Agricultural products 3.9 0.0 0.6 2.3 0.6 9.7 1.2 0.9 19.2
Minerals 20.3 0.2 3.7 5.1 2.9 24.6 47.6 26.5 130.8
Chemicals 0.4 0.1 0.4 3.0 0.0 7.2 4.1 4.2 19.4
Plastics, rubber, leather 1.2 1.0 3.2 15.5 0.2 24.4 2.4 17.9 65.9
Textiles, footwear, clothing 0.1 0.0 0.1 0.4 0.2 1.2 1.7 0.0 3.6
Stone, ceramics, glass 0.0 0.0 0.2 0.2 0.0 0.2 0.0 0.0 0.6
Metals 0.1 0.2 0.4 2.7 1.1 0.9 0.5 0.4 6.3
Machinery 0.0 0.2 0.6 3.4 0.0 0.7 0.1 0.0 5.0
Miscellaneous 0.0 0.1 0.1 0.2 0.0 0.3 0.0 0.0 0.8
Perishables 0.0 0.1 0.5 2.4 0.0 9.5 0.1 0.9 13.6
Total 26.1 1.9 9.7 35.3 5.0 78.8 57.6 50.8 265.3

164

Endnotes
1
Brian Larkin, “The Politics and Poetics of Infrastructure,” Annual Review of Anthropology 42, no. 1 (2013):
327-343.

2
Paul Musgrave and Daniel Nexon, “Zheng He's Voyages and the Symbolism Behind Xi Jinping's Belt and Road
Initiative,” The Diplomat, December 22, 2017, https://thediplomat.com/2017/12/zheng-hes-voyages-and-the-
symbolism-behind-xi-jinpings-belt-and-road- initiative/.

3
Speech by Xi Jinping: “Promote People-to-People Friendship and Create a Better Future,” September 7, 2013,
Astana, Kazakhstan, https://www.fmprc.gov.cn/mfa_eng/wjdt_665385/zyjh_665391/t1078088.shtml.

4
Interview with Professor Yang Zhongdong, July 30, 2017, Urumqi, Xinjiang.

5
Shohret Hoshur, “China Spiriting Uyghur Detainees Away From Xinjiang to Prisons in Inner Mongolia,
Sichuan,” Radio Free Asia, February 21, 2019, https://www.rfa.org/english/news/uyghur/detainees-
02212019162142.html.

6
Liu, W., Dunford, M., “Inclusive globalization: unpacking China's Belt and Road Initiative,” Area Development
and Policy 1, no. 3, (2016): 323-340, https://doi.org/10.1080/23792949.2016.1232598.

7
Randy Resor et al, “Short Haul Intermodal, Can it Compete with Trucks?” Transportation Research Record,
Volume 1873, (2004).

8
Wolfgang Lehmacher, “Why the New Silk Road needs a digital revolution,” January 13, 2017,
https://www.weforum.org/agenda/2017/01/china-new-silk-road-bumpy-ride/.

9
“The Communist Party is redefining what it means to be Chinese,” The Economist, August 17, 2017,
https://www.economist.com/news/china/21726748-and-glossing-over-its-own-history-mauling-chinese-culture-
communist-party-redefining.

10
Chinese leaders have often attempted to justify current positions by analogy to historic precedent. For
example, during China’s last period of self-imposed isolation, the Cultural Revolution, the Chinese leadership
emphasized the importance of self-reliance and independence and highlighted instances such as the Opium
Wars where foreign exchange had damaged China economically and culturally as evidence that foreign
influence and international engagement made the country weaker, not stronger.
J. Leslie, “Rejection of Foreign Quake Aid,” Los Angeles Times, August 8, 1978.

11
L. Mathews, “China opens trade door in bid to acquire technology quickly,” Los Angeles Times, February 19,
1978.

12
Interview with Colin Flint, Distinguished Professor of Political Geography in the Department of Political
Science at Utah State University, August 7, 2017.

13
World Bank, China Data, https://data.worldbank.org/country/china.

14
Similar to the situation in the Koreas, one of the first policies instituted by the newly independent Central
Asian states after achieving independence was reunification of families that had been broken apart by the
Sino Soviet split three decades prior.

165

Myron Weiner and Sharon Stanton Russell, Demography and National Security, (New York: Berghahn Books,
2001), 297.

15
Philip Shabecoff, “Trade with China Draws Interest,” New York Times (1923-Current File), August 25, 1963,
http://libproxy.usc.edu/login?url=https://search-proquest-
com.libproxy1.usc.edu/docview/116378109?accountid=14749.

16
Harrison E. Salisbury, “Soviet And China Widen Trade Pact,” New York Times (1923-Current File), March 26,
1953, retrieved from http://libproxy.usc.edu/login?url=https://search-proquest-
com.libproxy2.usc.edu/docview/112765274?accountid=14749.

17
One major effort focused on completing the double tracking of the Trans-Siberian railway as well as
upgrading the catenary system from 3000 V DC to 25 kV AC; David Shirres, “Trans Siberian Landbriedge,”
Global Rail News, November 29, 2011, https://www.globalrailnews.com/2011/11/29/trans-siberian-
landbridge/.

18
Raymond Zickel, “Soviet Union: A Country Study,” Library of Congress, Federal Research Division, May
1989, 488, https://www.loc.gov/item/90025756/.

19
Jersild, Austin, The Sino-Soviet Alliance (University of North Carolina Press: 2014), 14.

20
Kazakhstan is today a major grain exporter however almost all of its exports still go to Central Asia and
Russia; World-Grain.com, http://www.world-grain.com/Departments/Country-Focus/Country-Focus-
Home/Kazakhstan-2016.aspx?cck=1.

21
The cost per ton of grain shipments in the early 1960s, for example was three times the cost in the early
1990s, measured in real dollar terms. Nils-Gustav Lundgren, “Bulk trade and maritime transport costs: The
evolution of global markets,” Resources Policy 22, no. 1-2 (March – June 1996): 5-32.

22
World Bank,
https://data.worldbank.org/indicator/TG.VAL.TOTL.GD.ZS?end=1978&locations=CN&start=1960.

23
“America’s seven-decade history as Asia’s indispensable power,” The Economist, April 20, 2017,
https://www.economist.com/special-report/2017/04/20/americas-seven-decade-history-as-asias-indispensable-
power.

24
Harry Schwartz, “U.S. Aides See Severe Lag in Chinese Economy,” New York Times (1923-Current File),
March 07, 1963, http://libproxy.usc.edu/login?url=https://search-proquest-
com.libproxy1.usc.edu/docview/117942643?accountid=14749.

25
Hu Angang, Mao and the Cultural Revolution, (Silkroad Press, 2016), Volume 2; 91, 280.

26
There was great enthusiasm from the American business community that Nixon’s 1972 visit would open a
floodgate of trade with China. In the immediate aftermath, China did import a substantial amount of American
goods with trade between the two countries reaching $935 million in 1974 with the balance of exports to
imports decidedly in the U.S.’s favor. Nevertheless shortly after this initial enthusiasm faded and China’s
imports from the U.S. dropped sharply, as China sought to show its displeasure at the failure to fully
normalize diplomatic relations. It remained unclear whether China would be a reliable trade partner or
would offer market access only when diplomatic efforts were making progress.
Joseph Lelyveld, “U.S. China Trade: Politics and Economics put a damper on Trade,” The New York Times,
January 4, 1976.

27
The vast majority of China’s locomotive inventory remained steam driven in 1978 at a time when the
developed world had switched to diesel-electric models decades earlier.

166

“Ambitious Plans for Chinese Economy, Production Goals Unveiled by Chairman,” Wall Street Journal (1923 -
Current File), March 7, 1978, 10, http://libproxy.usc.edu/login?url=https://search-proquest-
com.libproxy1.usc.edu/docview/134254631?accountid=14749.

28
Cudahy, Brian, Box Boats: How Container Ships Changed the World (Fordham University Press, 2006), 141.

29
Wei, Shang-Jin, “Open Door Policy and China’s Rapid Growth: Evidence from City Level Data,” NBER
Working Paper, no. 4602 (December 1993).

30
Lisa Loftus-Otway et al, An Evaluation of Mexican Transportation Planning, Finance and Implementation
Processes, FHWA/TX-10/0-5985-1, 2009.

31
Howard J. Dooley, “The Great Leap Outward: China’s Maritime Renaissance,” The Journal of East Asian
Affairs, Institute for National Security Strategy, 26, no. 1 (Spring/Summer 2012): 53-76,
http://www.jstor.org/stable/23257908. Accessed November 12, 2014.

32
“While China is a late-comer to containerization, there are many indications that a real effort is being made
to equip at least the major ports with container handling facilities.” “China plans port modernization,” South
China Morning Post (1946-Current), May 25, 1979. Retrieved from
http://libproxy.usc.edu/login?url=https://search.proquest.com/docview/1533509142?accountid=14749.

33
“China plans port modernization,” South China Morning Post (1946-Current), May 25, 1979. Retrieved from
http://libproxy.usc.edu/login?url=https://search.proquest.com/docview/1533509142?accountid=14749.

34
“China plans port modernization.”

35
Weisskopf, Michael, “4 ‘Little Hong Kongs’: Capitalism Creates Chinese Boom Town,” The Washington Post,
April 19, 1982, A1.

36
Tjia, Linda, “Hong Kong’s Role in Mainland China’s Logistics Industry: From Physical Gateway to
Differentiated Service Provider,” Yin Nor Asian Survey 51, no. 4, (July/August 2011): 659-82.

37
“The PRC also regards the SEZs as major components of its increasing efforts towards meeting two of its
biggest foreign policy objectives: reintegration of Hong Kong and Taiwan with the mainland.”
Fenwick, Ann, “Evaluating China’s Special Economic Zones,” Berkley Journal of International Law, (1984): 2,
Article 7, http://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=1025&context=bjil.

38
Hong Kong was the world’s largest container port in 1987 and 1988 with an annual volume of over 4
million TEU’s.

Bangsberg, P.T., “Hong Kong Container Volume Tops 4 Million-TEU Mark,” Journal of Commerce, (February 13,
1989): 3B.

39
“The Chinese port of Dalian has invited tenders for the construction of a grain export terminal in
Ganqingzi,” Lloyd's List International, October 1, 1985.

40
Bangsberg, P.T., “China Expands Maritime Sector.” Journal of Commerce, (July 22, 1988): 1B.

41
Bangsberg, “China Expands Maritime Sector.”

42
Land, Thomas. , “Chinese Project Spurs Competition,” Journal of Commerce, (February 4, 1987), P. 16A.

43
“China Won’t Become a Superpower Soon.” The New York Times, February 2, 1988: sec. A.

167

44
“Memorandum and Recommendation of the President of the International Bank for Reconstruction and
Development to the Executive Directors on a Proposed Loan in an Amount Equivalent to US $76.4 Million To
The People’s Republic Of China For Ningbo And Shanghai Ports Project,” November 16, 1988, accessed
November 15, 2014,
http://wwwwds.worldbank.org/external/default/WDSContentServer/WDSP/IB/1999/07/27/000009265_39609
262 33346/Rendered/PDF/multi_page.pdf.

45
In more recent years, World Bank loans have shifted away from the major ports and toward inland areas
connected by waterways, and have increasingly been directed to provincial and local governments.
“China: Fifth Inland Waterways Project,” http://www.worldbank.org/projects/P085333/china-fifth-inland-
waterways?lang=en.

46
Wei, Shang-Jin, “Open Door Policy and China’s Rapid Growth: Evidence from City Level Data,” NBER
Working Paper, number 4602, (December 1993).

47
Special Report - Marintec China - Rail Bottleneck Prevents Economic Progress.

48
Marintec China.

49
Hongyi Harry Lai, “China’s Western development program: It’s Rationale, Implementation and Prospects,
”Modern China, 28, no. 4 (October 2002).

50
William Antholis, “New Players on the Global Stage: Chinese Provinces and India,” The Brookings Essay,
(2013), http://csweb.brookings.edu/content/research/essays/2013/new-players-on-the-world-stage.html#.

51
Hongyi Harry Lai, “China’s Western development program: It’s Rationale, Implementation and Prospects,”
Modern China, 28, no. 4, (October 2002).

52
Hongyi Harry Lai, “China’s Western development program: It’s Rationale, Implementation and Prospects,”
Modern China, 28, no. 4, (October 2002).

53
Yeung Yue-man and Shen Jianfa, Developing China's West: A Critical Path to Balanced National Development,
(China University Press, 2004), 20.

54
Ibid.

55
In addition, the west and northeast suffered from not only dearth of development but also ecological
damage resulting from improper land use. A 2004 book illustrated that the challenges of “developing” the
west were far greater than might be imagined. Western China, it states, is not a virgin territory, but a land that
has been “misused and abused for centuries” with “vast stretches of land seriously degraded,” including 80%
with soil erosion and high rates of desertification. These physical deficits with respect to environmental
sustainability have limited the viable development options.

56
Vladislav Zubok, Failed Empire: The Soviet Union in the Cold War from Stalin to Gorbachev. (Chapel Hill: The
University of North Carolina Press, 2007), 111.

57
Ilya Chubarov and D. Kalashnikov, “Belt and Road Initiative: Globalization the Chinese Way?”, World
Economy and International Relations 62, no. 1, (2018): 25-33. DOI:10.20542/0131-2227-2018-62-1-25-33 (in
Russian.)

58
Russia actually built the first Eurasian rail land bridge, the Tran-Siberian Railway, in 1904. It even had
access to a landbridge running through Chinese Territory, the Trans-Manchurian railway, until the invading
Japanese changed the rail gauge from Russian to standard in 1935.
https://www.globalrailnews.com/2011/11/29/trans-siberian-landbridge/

168

59
The USSR’s Baikal-Amur Mainline Railroad: Driving The Golden Spike (SOV 84-1019), Central Intelligence
Agency, https://www.cia.gov/library/readingroom/docs/DOC_0000497202.pdf

60
Christopher Ward, Brezhnev's Folly: The Building of BAM and Late Soviet Socialism. (Pittsburgh PA:
University of Pittsburgh Press, 2014), 7.

61
The USSR’s Baikal-Amur Mainline Railroad: Driving The Golden Spike (SOV 84-1019), Central Intelligence
Agency, https://www.cia.gov/library/readingroom/docs/DOC_0000497202.pdf.

62
Christopher Ward, Brezhnev's Folly: The Building of BAM and Late Soviet Socialism. (Pittsburgh PA:
University of Pittsburgh Press, 2014), 7.

63
The USSR’s Baikal-Amur Mainline Railroad: Driving The Golden Spike (SOV 84-1019), Central Intelligence
Agency, https://www.cia.gov/library/readingroom/docs/DOC_0000497202.pdf.

64
Russian Census (2010).

65
The USSR’s Baikal-Amur Mainline Railroad: Driving The Golden Spike (SOV 84-1019), Central Intelligence
Agency, https://www.cia.gov/library/readingroom/docs/DOC_0000497202.pdf.

66
Official Site of the President of the Russian Federation, “Belt and Road International Forum,” May 14, 2017,
http://en.kremlin.ru/events/president/news/54491.

67
Michael Alexeev, “A Tale of Two Crises: Federal Transfers and Regional Economies in Russia in 2009 and
2015,” Conference Paper, ASEEES Annual Convention, (November 12, 2017).

68
Ilya Chubarov, “Challenges and opportunities for the spatial development of Eurasia under the BRI: the case
of Eurasian Economic Union,” Area Development and Policy, 4, no. 1, (November 16, 2018),
https://www.tandfonline.com/doi/full/10.1080/23792949.2018.1527181.

69
Iikka Korhonen, “Russia’s Economic Model, Now and in 2035,” Presentation at ASEEES Annual Convention,
(November 11, 2017).

70
TASS, “Russia to step up import substitution activities, senior diplomat says,” (August 17, 2017),
http://tass.com/economy/959422.

71
World Bank, “Turning the Tide in Turbulent Times: Leveraging Trade for Kazakhstan’s Development,”
(2017), http://www.worldbank.org/en/country/kazakhstan/publication/leveraging-trade-for-kazakhstans-
development.

72
Ilya Chubarov, “Challenges and opportunities for the spatial development of Eurasia under the BRI: the case
of Eurasian Economic Union,” Area Development and Policy, 4, no. 1, (November 16, 2018),
https://www.tandfonline.com/doi/full/10.1080/23792949.2018.1527181.

73
Subraba Baniya, “Effects of Timeliness on the Trade Pattern between Primary and Processed Goods,” IMF
Working Paper, No. 17/44, (March 2017).

74
Bluhm et al, “Connective Financing: Chinese Infrastructure Projects and the Diffusion of Economic Activity
in Developing Countries,”AID Data, Working Paper 64,
https://www.aiddata.org/publications/connective-finance-chinese-infrastructure-projects.

75
This chapter is adopted from a paper by Nathan Hutson and Bernard Aritua for the World Bank Policy
Research Working Paper Series.

169

76
de Soyres, Francois; Mulabdic, Alen; Murray, Siobhan; Rocha, Nadia; Ruta, Michele. 2018. How Much Will
the Belt and Road Initiative Reduce Trade Costs?. Policy Research Working Paper;No. 8614. World Bank,
Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/30582 License: CC
BY 3.0 IGO.”

77
Hui Lu, Charlene Rohr, Marco Hafner, and Anna Knack, China Belt and Road Initiative: Measuring the impact
of improving transportation connectivity on trade in the region, (Santa Monica, CA: RAND Corporation, 2018),
https://www.rand.org/pubs/research_reports/RR2625.html.

78
Derudder, Ben; Liu, Xingjian; Kunaka, Charles. 2018. Connectivity Along Overland Corridors of the Belt and
Road Initiative. MTI Global Practice Discussion Paper;No. 6. World Bank, Washington, DC. © World Bank.
https://openknowledge.worldbank.org/handle/10986/30609 License: CC BY 3.0 IGO.”

79
Behrooz, Gharleghi and Vladimir Popov, “Changes in the geographical structure of trade in Central Asia:
Real flows in the 1989-2016 period versus gravity model predictions,” Dialogue of Civilizations Research
Institute, (September 2018).

80
“Chen, Maggie Xiaoyang; Lin, Chuanhao. 2018. Foreign Investment across the Belt and Road : Patterns,
Determinants, and Effects. Policy Research Working Paper;No. 8607. World Bank, Washington, DC. © World
Bank. https://openknowledge.worldbank.org/handle/10986/30577 License: CC BY 3.0 IGO.”

81
World Bank Internal Analysis.

82
World Bank Internal Analysis.

83
World Bank Internal Analysis.

84
“China-Kazakhstan border woes dent Silk Road ambitions,” Financial Times, December 20, 2017.

85
Roland Berger, “Eurasian Rail Corridors: What Opportunities for Freight Stakeholders?” International Union
of Railways, (October 2017), https://uic.org/IMG/pdf/corridors_exe_sum2017_web.pdf.

86
World Bank Internal Analysis.

87
Interview by the author with DB Schenker, Xi’an, China, July 30, 2017.

88
World Bank Internal Analysis.

89
Interview by the author with DB Schenker, Xi’an, China, July 30, 2017.

90
World Bank Internal Analysis.

91
Nataliya Skorlygina, “Kazastan switched the rail,” Kommersant, June 26, 2017,
https://www.kommersant.ru/doc/3335935,

92
Source: Interview by the author with Varvara Krechetova, UNESCAP.

93
Ankit Panda, “Sri Lanka Formally Hands Over Hambantota Port to Chinese Firms on 99-Year Lease,” The
Diplomat, December 11, 2017, https://thediplomat.com/2017/12/sri-lanka-formally-hands-over-
hambantota-port-to-chinese-firms-on-99-year-lease/.

94
Maria Abi-Habib, “How China Got Sri Lanka to Cough up a Port,” The New York Times, June 25, 2018,
https://www.nytimes.com/2018/06/25/world/asia/china-sri-lanka-port.html.

95
“China to invest a further US$1 billion in Sri Lankan harbour megaproject,” South China Morning Post, July

170

20, 2018, https://www.scmp.com/news/china/diplomacy-defence/article/2126606/china-invest-further-
us1-billion- sri-lankan-harbour.

96
Shihar Aneez, “Sri Lanka's China-backed Port City sees up to $4 billion investment interest,” Reuters, May 2,
2018, https://www.reuters.com/article/us-sri-lanka-china-portcity/sri-lankas-china-backed-port-city-sees-
up-to-4-billion-investment-interest-idUSKBN1I30ZO.

97
Lee Yimou, “China to take 70 percent stake in strategic port in Myanmar – official,” Reuters, October 17,
2017, https://www.reuters.com/article/china-silkroad-myanmar-port-idUSL4N1MS3UB.

98
Ibid.

99
Shannon Tiezzi, “Chinese Company Wins Contract for Deep Sea Port in Myanmar,” The Diplomat, January 1,
2016, https://thediplomat.com/2016/01/chinese-company-wins-contract-for-deep-sea-port-in-myanmar/.

100
Port of Pelepas Container Services, http://www.ptp.com.my/services/container.

101
“Huge investments go into building Malaysian ports,” The Star Online, July 22, 2017,
https://www.thestar.com.my/business/business-news/2017/07/22/huge-investments-go-into-building-
malaysian-ports/.

102
“Malaysia suspends construction of East Coast Railway Link,” Straits Times, July 4, 2018,
https://www.straitstimes.com/asia/se-asia/malaysia-suspends-construction-of-east-coast-railway-link.

103
“Mahatma Gandhi, Auezova, and Zhukeyeva-Pudovkin Streets (Rehabilitation),” Reconnecting Asia Project,
Database for Kyrgyzstan, https://reconnectingasia.csis.org/database/projects/mahatma-gandhi-auezov-and-
zhukeeva-pudovkin-streets-rehabilitation/30202d9c-8229-44fd-8ac0-d6a301ed75b3/.

104
“Alternative North-South Highway Kyzyl-Jyldyz-Aral and Karzarm-Jalal-Abad (Rehabilitation),”
Reconnecting Asia Project, Database for Kyrgyzstan,
https://reconnectingasia.csis.org/database/projects/alternative-north-south-highway-kyzyl-jyldyz-aral-and-
karzarm-jalal-abad-rehabilitation/3854e468-0f63-4346-8ae9-ad35630fff64/.

105
“National Road Rehabilitation (Osh-Batken-Isfana), Ak Tatyr-Isfana section,” Reconnecting Asia Project,
Database for Kyrgyzstan,
https://reconnectingasia.csis.org/database/projects/osh-batken-isfana-road-restoration-ak-tatyr-isfana-
section/4fd90eae-2b7b-4f32-b759-f20cc893aa27/.

106
Interview by the author with Dr. Nicola Contessi, Professor of Political Science, Nazarbayev University,
Astana, July 25, 2017.

107
“China steps up investments in Kazakhstan,” Azernews, November 18, 2018,
https://www.azernews.az/region/141612.html.

108
“Китай — крупнейший инвестор транспортной инфраструктуры Казахстана: на конец первого
полугодия 2018 года 31,2% всех инвестиционных потоков в сектор сформировано китайскими
инвесторами,” Finprom.kz, November 2018,
http://finprom.kz/ru/article/kitaj-krupnejshij-investor-transportnoj-infrastruktury-kazahstana-na-konec-
pervogo-polugodiya-2018-goda-312-vseh-investicionnyh-potokov-v-sektor-sformirovano-kitajskimi-
investorami.

109
Zhang Hui, “Uzbekistan reaps benefits of Belt and Road initiative with construction of first railway tunnel,”
Global Times, May 7, 2018,
http://www.globaltimes.cn/content/1101109.shtml.

171

110
Murat Sadykov, “Uzbekistan: New Ferghana Railway Plan Tweaks Tajikistan,” Eurasianet, March 14, 2013,
https://eurasianet.org/uzbekistan-new-ferghana-railway-plan-tweaks-tajikistan.

111
Farrukh Juraev, “Central Asia in international transport corridors system: Uzbekistan's approach,” The
Korea Times, November 12, 2018,
https://www.koreatimes.co.kr/www/nation/2018/11/176_258213.html.

112
“Bukhara-Samarkand Railway Electrification,” Reconnecting Asia Project, Database for Uzbekistan,
https://reconnectingasia.csis.org/database/projects/bukhara-samarkand-railway-electrification/6f34a2fe-
6423-4321-9018-fef6c38becac/.

113
Frank Fang, “Russian Officials Voice Concerns About Chinese-Funded Rail Line,” Epoch Times, January 1,
2019),
https://www.theepochtimes.com/russian-officials-voice-concerns-about-chinese-funded-rail_2753913.html.

114
Ekaterina Tarasova, “Irkutsk manager appointed director of MUP Express in Dzerzhinsk,”
(“В Дзержинске директором МУП «Экспресс» назначен иркутский управленец”), Kommersant, January
18, 2019, https://www.kommersant.ru/doc/3859094.

115
“Chinese investors are discovering the Russian Far East Anew” (“Китайские инвесторы по-новому
открывают для себя Дальний Восток”), TASS, August 24, 2018, https://tass.ru/vef-
2018/articles/5486435.

116
“Electrification of the Gomel-Zhlobin-Osipovichi Section,” Reconnecting Asia Project, Database for Belarus,
https://reconnectingasia.csis.org/database/projects/electrification-of-railway-sections-gomel-zhlobin-
osipovichi/013de91d-2794-4b2f-baaf-5e8ee4458934/.

117
“World Bank Calls on Belarus to Introduce Rail Reforms”, Railway Technology, February 25, 2019.

118
“Construction of the railway Russia-Kazakhstan-Kyrgyzstan-Tajikistan “(Karamika-Vahdat Section),
Reconnecting Asia Project,
https://reconnectingasia.csis.org/database/projects/construction-railway-russia-kazakhstan-kyrgyzstan-
tajikistan-karamika-vahdat-section/fbf95750-a17b-4b47-9cb8-7018d0ced742/.

119
“Construction of a New Rail Line from Vahdat–Karamyk“ (“Строительство новой железнодорожной
линии Вахдат–Карамык (гр. Кыргызстана)”), Ministry of Transport of the Republic of Tajikistan, 2014
http://tpp.tj/business-guide2017/pdf/inv_pr/transport/rus/Строительство новой железнодорожной
линии Вахдат–Карамык (гр. Кыргызстана).pdf.

120
Corruption Perceptions Index for the Republic of Georgia, Transparency International,
https://www.transparency.org/country/GEO.

121
“Georgia: Tbilisi Railway Bypass Project,” Reconnecting Asia Project, Database for Georgia,
https://reconnectingasia.csis.org/database/projects/georgia-tbilisi-railway-bypass-project/c41f54db-b9b4-
4e74-8ce7-22111777176a/.

122
“Large Chinese company interested in Anaklia Port Project,” agenda.ge/en/news/2018/294.

123
Russian National Railroads 2016 Annual Report, https://ar2016.rzd.ru/pdf/ar/en/en-annual-report-
pages.pdf.

124
UNESCAP, Comprehensive Planning of Eurasian Transport Corridors to Strengthen the Intra- And Inter-
Regional Transport Connectivity, 2017,
https://www.unescap.org/sites/default/files/Study%20Report%20Eurasian%20Corridors-Final.pdf.

172

125
Mischa Wanek-Libman, “BNSF completes second track at Pecos River,” RT&S, September 6, 2016,
https://www.rtands.com/freight/class-1/bnsf-completes-second-track-at-pecos-river/.

126
“Malaysia suspends construction of major Belt and Road rail project,” Channel News Asia, July 4, 2018,
https://www.channelnewsasia.com/news/asia/malaysia-suspends-construction-of-major-belt-and-road-
rail-10499184.

127
UNESCAP, Comprehensive Planning of Eurasian Transport Corridors to Strengthen the Intra- And Inter-
Regional Transport Connectivity, 2017,
https://www.unescap.org/sites/default/files/Study%20Report%20Eurasian%20Corridors-Final.pdf.

128
Resor et al, “Short Haul Intermodal, Can it Compete with Trucks?”, Transportation Research Record, 1873,
(2004).

129
Claire Hammond, “The grand plan for the China-Myanmar Economic Corridor,” Frontier Myanmar,
September 26, 2018,
https://frontiermyanmar.net/en/the-grand-plan-for-the-china-myanmar-economic-corridor.

130
UNESCAP, Comprehensive Planning of Eurasian Transport Corridors to Strengthen the Intra- And Inter-
Regional Transport Connectivity, 2017, Table 21,
https://www.unescap.org/sites/default/files/Study%20Report%20Eurasian%20Corridors-Final.pdf.

131
“When companies ship by air they only need to deal with the red tape of customs and inspections at the
beginning and end of a journey. Ground transportation is less expensive, but it stalls each time you cross a
border. Products not only move slowly but are also subject to increased costs, including potentially moving
from one truck or train to another. There are also tariffs, arbitrary delays and possible system
manipulation.” Wolfgang Lehmacher, “Why the New Silk Road needs a digital revolution,” World Economic
Forum, January 13, 2017, https://www.weforum.org/agenda/2017/01/china-new-silk-road-bumpy-
ride/.

132
“Kazakhstan Evaluated both Russian and Chinese Rail Cars,” Kommersant, June 26, 2017,
https://www.kommersant.ru/doc/3336603.

133
Russian National Railways, 2016 Annual Report, https://ar2016.rzd.ru/pdf/ar/en/en-annual-report-
pages.pdf.

134
P.S. Martins & Y. Yang, “The impact of exporting on firm productivity: a meta-analysis of the learning-by-
exporting hypothesis,” Review of World Economics, 145, no. 3, (2009): 431-445.

135
Aiyar, Duval, Puy, Wu and Zhang, “Growth Slowdowns and the Middle-Income Trap,” Asia and Pacific Dep,
IMF Working Paper, 71 (2013).

136
J. Felipe, “Tracking the Middle-Income Trap: What Is it, Who is in it and Why?” Asian Development Bank
Working Paper, 306, (2012).

137
Victoria Golikova, Ksenia Gonchar, and Boris Kuznetsov, “Entry into Export Markets as an Incentive to
Innovate. Evidence from The Russian Manufacturing Industry Survey,” National Research University Higher
School of Economics Working Papers Series, WP BRP 11/EC/2011: 12.

138
Hausmann and Hidalgo et al, “Atlas of Economic Complexity: Mapping Paths to Prosperity,” Harvard
University Center for Economic Development,
https://atlas.media.mit.edu/static/pdf/atlas/AtlasOfEconomicComplexity_Part_I.pdf.

173

139
As noted by Rodrik ,“Free entry (of new firms) makes the non-appropriability problem worse.” Ricardo
Hausmann and Dani Rodrik, “Economic Development as Self-Discovery,” Journal of Development Economics
72, no. 2, (2003): 603-633.

140
“World Bank Open Data,” https://data.worldbank.org.

141
Orbis/RUSLANA Database of employment by region by NACE category.

142
Vera Ivanova “On the Dynamics of Spatial Interaction of the Russian Regions, Economics and Geography,”
St. Petersburg Center for Social and Economic Research (2013).

143
Email exchange by the author with Dr. Viktoria Golikova, February 17, 2018.

144
Ekaterina Aleksandrova, Kristian Behrens and Maria Kuznetsova, “Manufacturing (co)agglomeration in a
transition country: Evidence from Russia”, Moscow Higher School of Economics, Basic Research Program
Working Papers Series (WP BRP 186/EC/2018)

145
Ibid

146
Keith Barrow, “French rail freight policy: that sinking feeling”, International Railway Journal, October 1,
2017

147
Economic Complexity Rankings (ECI), https://atlas.media.mit.edu/en/rankings/country/eci/.

148
Economists identified a dearth of innovative activity as a large factor in relative unattractiveness of
Russian-made products on world markets. While innovation and creativity are difficult to objectively
measure, Russia does not score well on several critical measures. For instance, the numbers of patents filed
per population is 7.8 per million, compared to 218.9 in Germany and 176.5 in the U.S. In addition, a recent
report by the Higher School of Economics in Moscow notes that by some metrics, Russian manufacturing
sectors have become less innovative than they were in 2006. The Higher School of Economics has long
recognized a lack of innovation in Russian industry as a key development challenge. As a result, the HSE
created a composite index of innovation that is made of the following components:
1.Research and development. 2. Design. 3. Purchase of machinery and equipment. 4. Acquisition of new
technologies. 5. Acquisition of software tools for engineering and training staff. 6. Marketing research. 7.
Other costs. Expenditures in any of these areas are counted as contributions toward innovation. Researchers
from the Moscow Higher School of Economics illustrate the percentage of exports from different commodity
classes deemed to be technologically innovative. For example, they count products that have been developed
using domestic R&D. It shows that within each commodity class, not all of the production can be considered
innovative, even if the nature of the product suggests economic sophistication, as measured by the Harvard
product complexity index. These measures of innovative activity can be useful in contextualizing the extent to
which growth in particular industries would benefit the technological upgrading of the economy.

149
World Economic Forum Global Competitiveness Ratings, 2017, World Economic Forum,
http://reports.weforum.org/global-competitiveness-index-2017-2018/competitiveness-
rankings/?doing_wp_cron=1527189519.5290749073028564453125#series=EOSQrailroad.

150
Russian National Railways 2016 Annual Report, https://ar2016.rzd.ru/pdf/ar/en/en-annual-report-
pages.pdf.

151
Structure of the Joint Stock Company RZD, Characteristics of Freight Terminals (Структура ОАО
"РЖД,” “Характеристика грузовых дворов”),
http://www.rzd.ru/ent/public/ru?STRUCTURE_ID=5185&layer_id=5554&refererLayerId=5553&id=10
15.

174

152
“Register of owners of temporary storage warehouses”, Russian Customs Ministry,
http://ved.customs.ru/index2.php?option=com_listnsi&view=sinnsi&url_id=V_BX&thispagenum
=1

153
Ibid.

154
UNESCAP, Comprehensive Planning of Eurasian Transport Corridors to Strengthen the Intra- And Inter-
Regional Transport Connectivity, 2017,
https://www.unescap.org/sites/default/files/Study%20Report%20Eurasian%20Corridors-Final.pdf.

155
UNESCAP Intergovernmental Agreement on Dry Ports,
https://www.unescap.org/sites/default/files/E69-7-Resolution-on%20Dry-Ports_0.pdf.

156
Reconnecting Asia Database, https://reconnectingasia.csis.org/.

157
Profile of Aktobe Center, Reconnecting Asia Database,
https://reconnectingasia.csis.org/database/projects/aktobe-centre/ab01c9d7-4c38-476d-93e9-
19baa41bd3f0/

158
Michael Rothlitz, “Anti-Corruption Campaigns as Tools of Authoritarian Support: A Comparison of Russia
and China,” ASEEES Annual Meeting, December 6, 2018.

159
“Russian Attitudes Toward Other Countries,” Levada Center, April 13, 2018,
https://www.levada.ru/en/2018/04/13/attitudes-toward-other-countries/.

160
Ramain Pradier, “Chinese Immigration to Siberia: A Source of Tensions Between Moscow And Beijing?”
University of Helsinki Chinese Studies, November 18, 2017,
https://blogs.helsinki.fi/chinastudies/2017/11/28/chinese-immigration-to-siberia-a-source-of-tensions-
between-moscow-and-beijing/.

161
Jabor Poushter, “Russians Warm to China as Relations with U.S. Cool,” Pew Research Center, July 8, 2015,
http://www.pewresearch.org/fact-tank/2015/07/08/russians-warm-to-china-as-relations-with-u-s-cool/.

162
“Russia's Eurasian Union Project Should Focus More on Asia – Pundit,” Rossiyskaya Gazeta (Moscow,
Russia), November 20, 2013, NewsBank. https://infoweb-newsbank-
com.libproxy1.usc.edu/apps/news/document-view?p=AWNB&docref=news/14A480F4A37679D8.

163
Biography of State Duma Deputy Inga Yumasheva, Committee on International Affairs of the State Duma,
http://interkomitet.com/about-the-committee/committee-members/inga-yumasheva/.

164
“China is Preparing to Take Control of Afghanistan,” (“Китай готовится взять под контроль
Афганистан”), Vesti Finance, November 14, 2018, https://www.vestifinance.ru/articles/110156.

165
“Of Importance to Orenburg: The Region has begun to build a Toll Road named ‘Magistral’,” (Важный для
Оренбуржья объект: в области начали строить платную "Магистраль"), September 6, 2018,
https://www.vesti.ru/doc.html?id=3057301#.

166
“Vladimir Putin Meets with Members of the Valdai Discussion Club,” Full Transcript of the Plenary Session
of the 15th Annual Meeting, October 18, 2018,
http://valdaiclub.com/events/posts/articles/vladimir-putin-meets-with-valdai-discussion-
club/?sphrase_id=483151.

167
Rustem Falyahov, “Silk Road – 2017: Why is Russia Interested?” («Шелковый путь – 2017: в чем интерес
России?» Gazeta.ru, May 13, 2017.

175

168
Grigorii Tinskii, Profile of the New Silk Road, 2014, https://novom.ru/en/watch/H9cgM9jqw-M.

169
“Strangled by Silk” (“Шелковая удавка), Lenta.ru, February 8, 2018,
https://lenta.ru/articles/2018/02/08/ukraineinvest/.

170
‘The Moscow Region authorities have promised to allocate land for the Chinese industrial park” (“Власти
Подмосковья пообещали выделить землю под китайский индустриальный парк”), Lenta.ru, May 5,
2017,
https://lenta.ru/news/2017/07/05/parki/.

171
Vladimir Skosyrevh, “Chinese government discusses trade war with U.S. while on vacation,” (“Китайское
руководство обсуждает на курорте торговую войну с США”), August 5, 2018.

172
Irina Halip, “ Last stop on the Silk Road, Belarus and China have done away with visas,” (“Последняя
остановка на Шелковом пути, Беларусь и Китай отменили визовый режим”), June 12, 18,
https://www.novayagazeta.ru/articles/2018/06/12/76772-poslednyaya-ostanovka-na-shelkovom-puti.

173
Ibid.

174
“Long Yuan: China willingly credits Russia. On its own terms and in the absence of competitors.”
(“Длинный юань: Китай охотно кредитует Россию. На своих условиях и в отсутствии конкурентов”),
Novaya Gazeta, June 10, 2018, https://www.novayagazeta.ru/articles/2018/06/10/76763-dlinnyy-yuan.

175
Ibid.

176
Aziz Burkhanov and Yu-Wen Chen, “Kazakh perspective on China, the Chinese, and Chinese migration,”
Ethnic and Racial Studies, (2016) 39:12, 2129-2148, DOI: 10.1080/01419870.2016.1139155.

177
Ibid.

178
“Minister: Another Ethnic Kazakh has been granted permission to leave for Kazakhstan,” (“Министр:
Қытайда тағы бір этникалық қазақ елден шығуға рұқсат алды”), Zhash Alash, August 7, 2018,
https://zhasalash.kz/15719/.

179
“Kazakhstan should not return Saitabay to China - Human Rights Organization,”
(“HRW: Қазақстан Сайрагүл Сауытбайды Қытайға қайтармауы тиіс’), SNKZ, July 31, 2018,
https://sn.kz/kk/sn-akparat-agyny/40787-aza-stan-sajrag-l-sauytbajdy-ytaj-a-ajtarmauy-tiis-y-or-au-jymy.

180
Nurtay Lahanovich, “The Kazakh who saw the Xinjiang ‘political camp’ from the inside,” April 24, 2018,
https://www.azattyq.org/a/china-xinjiang-political-prison-ex-detainee/29189620.html.

181
Farkhad Sharip, “Astana Grapples with Growing Sinophobic Sentiment in Kazakhstan,”
https://jamestown.org/program/astana-grapples-growing-sinophobic-sentiment-kazakhstan/.

182
Bruce Pannier, “Majlis Podcast: Kazakhstan's Protests, One Year Later,” Radio Free Europe/Radio Liberty,
April 30, 2017,
https://www.rferl.org/a/qishloq-ovozi-kazakhstan-protests-one-year/28460322.html.

183
Ibid.

184
“Rada indignant at Kiev’s intention to stop transport communications with Russia,”
(“В Раде возмутились намерением Киева прекратить сообщение с Россией”), Lenta.ru, August 20, 2018,
https://lenta.ru/news/2018/08/20/rada/.

185
“There was never a Russian-Ukrainian Friendship: The government explains why they want to block the

176

rail connection to Russia” (“Російсько-української дружби ніколи не було: в уряді пояснили, чому хочуть
скасувати потяги до РФ”), Vysokiy Zamok,
https://wz.lviv.ua/news/375993-rosiisko-ukrainskoi-druzhby-nikoly-ne-bulo-v-uriadi-poiasnyly-chomu-
khochut-skasuvaty-potiahy-do-rf.

186
“China is building a new ‘Silk Road,’ bypassing Russia,” Express, July 18,2017,
http://expres.ua/news/2017/07/18/252975-kytay-buduye-novyy-shovkovyy-shlyah-omynayuchy-rosiyu.

187
“Trains from three European countries to China will travel through Ukraine,” Vysokiy Zamok, October 31,
2017, https://wz.lviv.ua/news/209551-potiahy-z-trokh-krain-yevropy-do-kytaiu-kursuvatymut-cherez-
ukrainu.

188
“Знаете, у России есть исследовательская программа Транс-Евразийский Пояс «Развитие». Данная
программа была разработана за несколько лет до инициативы «Один Пояс — Один Путь»”. – В.
Якунин. “Yakunin: changes in Russian-U.S. relations are quite possible,” (“Якунин: изменения в
отношениях России и США вполне возможны”), Inosmi, December 15, 2016,
https://inosmi.ru/politic/20161215/238400606.html.

189
“The Head of RZD Presented a Plan for the Development of Russia Costing Trillions of Dollars,”
(“Глава РЖД предложил план развития России стоимостью в триллионы долларов”), Interfax,
http://www.interfax.ru/russia/363821.

190
Russian National Railways (RZD) Description of TEPR Razvite (Действительно, если говорить о Транс-
Евразийском поясе Razvitie как о поселенческо-индустриальной полосе шириной 200-300 км вокруг
транспортных и энергетических коридоров вдоль всей Евразии, то объeм вложений должен
достигать триллионов, а то и десятков триллионов евро.),
http://www.kp-plant.ru/upload_data/2015/TEDB-Razvitie.YakuninDoklad.pdf.

191
Ibid.

192
Interview with President Vladimir Putin, RT, December 11, 2013, Путин: “Hе Россия между Востоком и
Западом, а они слева и справа от России!”,
https://www.youtube.com/watch?v=oFKUkSJf8-8.

193
“Trans-Eurasian belt ‘Razvitie’ part of the ‘Silk Road’,” (“Транс-Евразийский пояс ‘Развитие’ на
‘Шелковом пути’”), Gudok.ru,
http://www.gudok.ru/transport/zd/?ID=1274472.

194
Central Asia-South Asia Railways Connectivity, World Bank, October 15, 2018.

195
“Putin approves Russia's anti-corruption plan for 2018-2020,” Xinhuanet, July 1, 2018,
http://www.xinhuanet.com/english/2018-07/01/c_137292613.htm.

196
Frank Fang, “Russian Officials Voice Concerns About Chinese-Funded Rail Line,” Epoch Times, January 1,
2019, https://www.theepochtimes.com/russian-officials-voice-concerns-about-chinese-funded-
rail_2753913.html.

197
Ibid.

198
Irina Andreeva, “Anton Siluanov believes that the high speed rail Moscow-Kazan is not economically
feasible,” (“Антон Силуанов считает ВСМ Москва-Казань экономически неэффективной”), Kommersant,
December 25, 2018, https://www.kommersant.ru/doc/3842716.

199
Ivan Zuenko, “Speed Lovers: The Chinese have built the world's coolest high-speed rail system. But their
recipes for success may not work in other countries,” (“Любители быстрой езды - Китайцы построили

177

самую крутую в мире систему высокоскоростных железных дорог. Но их рецепты успеха могут не
сработать в других странах”), Profile, July 19, 2018, https://profile.ru/economics/item/126236-lyubiteli-
bystroj-ezdy.

200
Ibid.

201
Sergei Shagoradsky, “Russia Worried Over Tatarstan Referendum on Independence,” March 19, 1992,
https://apnews.com/b980353468c8a8647b999f02e109d53c.

202
Interview by the author with Raushan Kumekbaeva, Astana, August 1, 2017.

203
Interview by the author with Adyl Azhumadi, Former Kazakh Transport Ministry Official, December 10,
2018.

204
Interview by the author with Eldar Dyussetayev, Kazakh Trade Official, February 5, 2019.

205
Vladimir Kalugan, “Confucian Soldiers: China has secretly penetrated almost all countries and threatened
half the world,” (“Солдаты Конфуция: Китай тайно проник почти во все страны. Под угрозой половина
мира”), Lenta.ru, October 12, 2018, https://lenta.ru/articles/2018/10/02/chinese_influence/.

206
Vladimir Kulagin, “Confucian Soldiers: China has secretly penetrated almost all countries and threatened
half the world” (Солдаты Конфуция: Китай тайно проник почти во все страны. Под угрозой половина
мира), Lenta.ru, December 2, 2018, https://lenta.ru/articles/2018/10/02/chinese_influence/.

207
Interview by the author with Beissin Ussenov, Deputy Mayor of Karaganda, December 10, 2018.

208
Interview by the author with Nicola Contessi, Professor of Political Science, Nazarbayev University, Astana,
July 28, 2017.

209
Interview by the author with Dr. Charles Sullivan, Professor of International Relations, School of
Humanities, Nazarbayev University, Astana, July 28, 2017.

210
Email exchange by the author with Professor Aziz Burkhanov, August 30, 2018.

211
“Sergey Zheleznyak: One Belt – One Road Project Will Significantly Expand Potential for Economic
Cooperation Between Asian and European Countries,” (“Сергей Железняк: Проект «Один Пояс - Один
Путь» Существенно Расширит Возможности Для Экономического Сотрудничества Между Азиатскими
И Европейскими Государствами”), May 5, 2017, http://www.er-duma.ru/news/proekt-odin-poyas-odin-
put-rasshirit-vozmozhnosti-dlya-sotrudnichestva-mezhdu-evropoy-i-aziey/?sphrase_id=32201.

212
Mikhail Korostikov, “Russia and China View themselves as Defenders of International Law,” (“Россия и
Китай видят себя защитниками международного права”), Kommersant, April 24, 2018,
https://www.kommersant.ru/doc/3612755.

213
«За девять месяцев договориться о чем-то по-настоящему прорывном сложно. Особенно для такой
молодой и неоднородной структуры, как ЕАЭС,— заявил “Ъ” эксперт.— Спешка вызвана скорее
политическими мотивами, желанием сторон ответить на подписание договора о Транстихоокеанском
партнерстве (12 стран подписали соглашение 8 марта в Окленде.— “Ъ”), показать, что обе страны
находятся в авангарде написания правил игры для свободной торговли». Ibid.

214
Nur, which means radiant or light, is the same term used to describe Kazakhstan’s infrastructure master
plan Nurly Zhol.

215
Interview by the author with Eldar Dyusseyaev, Kazakh trade official, February 5, 2019.

178

216
Doctrine of the Nurly Zhol Party, http://www.nurotan.kz/doctrine.

217
Nurly Zhol Master Plan.

218
Nargis Kassenova, “What’s Next for Kazakhstan?” Project Syndicate, March 21, 2019, https://www.project-
syndicate.org/commentary/kazakhstan-nazarbayev-resignation-impact-by-nargis-kassenova-2019-03.

219
Joanna Lillis, “Kazakhstan: A president called Tokayev. A future called Nursultan,” Eurasianet, March 21,
2019.

220
James Blitz, “Kazakhstan president comes to Gorbachev's rescue”, The Sunday Times, December 16, 1990.

221
Nargis Kassenova, email exchange with the author, March

222
Email exchange with a World Bank official, March 22, 2019.

223
The Kazakh parliament has proposed renaming the capital Nursultan to honor Nazarbayev.

224
Email exchange with student at Nazarbayev University, March 25, 2019.

225
Siarhei Bohdan, “Putin expects Belarus to boycott ports of Baltic States,” Belarus Digest, August 24, 2017,
https://belarusdigest.com/story/putin-wants-belarus-to-boycott-baltic-states-ports/.

226
“Lukashenko, we will never come to Ukraine with Tanks”, Segodnya, October 26, 2018.
https://www.segodnya.ua/politics/lukashenko-my-nikogda-ne-pridem-v-ukrainu-na-tankah-1183328.html

227
This section was developed in coordination with Dr. Brett Hollenbeck, Assistant Professor at the UCLA
Anderson School of Business.

228
Mark Szakonyi, “China Europe Rail Attracts Smaller Shippers as Services Expand,” Journal of Commerce,
April 12, 2017, http://www.joc.com/rail-intermodal/international-rail/europe/china-europe-rail-attracts-
smaller-shippers-services-expand_20170412.html?page=0%2C2.

229
“Malaysia to make official announcement on East Coast Rail Link next week: Finance Minister Lim Guan
Eng,” Straits Times, January 27, 2018, https://www.straitstimes.com/asia/se-asia/malaysia-to-make-official-
announcement-on-east-coast-rail-link-next-week-finance.

230
“All aboard: China's high-speed rail 10 years on,” Xinhua, August 2, 2018,
http://en.people.cn/n3/2018/0802/c90000-9486898.html.

231
Nathan Hutson, “Is the Eurasian Belt and Road Headed toward a Rate Wrangle?” Eurasianet, February 8,
2018, https://eurasianet.org/perspectives-is-the-eurasian-belt-and-road-headed-toward-a-rate-wrangle.

179

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Abstract (if available)

Abstract This dissertation explores the long term development implications of China's Eurasian rail land bridge on the economies of countries it transits, namely Kazakhstan, Russia and Belarus. The dissertation explores the historical context of the Belt and Road Initiative (BRI) and how it emerged from China's prior efforts to develop underperforming western provinces. Particular attention is paid to the impact of the Sino-Soviet Split and its role in distorting the spatial development of Eurasia. Alternative routing options for Eurasian cargo are evaluated along with infrastructure projects affiliated with the BRI. A geospatial analysis of manufacturing firms illustrates the extent to which alternative corridor routings serve the pre-existing base of firms of different industrial classifications in order to show how these alignments dovetail with the countries' national development strategies. The final chapter explores the institutional and geopolitical dimensions of the Belt and Road Initiative in Eurasia, including an analysis of the political transition in Kazakhstan.

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Asset Metadata

Creator Hutson, Nathan (author)

Core Title The development implications of China’s Belt and Road Initiative for Russia, Kazakhstan and Belarus

School School of Policy, Planning and Development

Degree Doctor of Philosophy

Degree Program Urban Planning and Development

Publication Date 05/06/2019

Defense Date 03/17/2019

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag Belarus,Belt and Road Initiative,Central Asia,China,Economic development,infrastructure coordination,intermodal transportation,Kazakhstan,New Silk Road,OAI-PMH Harvest,rail,Russia,Sino-Soviet split

Format application/pdf (imt)

Language English

Contributor Electronically uploaded by the author (provenance)

Advisor Giuliano, Genevieve (committee chair), De la Roca, Jorge (committee member), Heikkila, Eric (committee member), Nugent, Jeff (committee member)

Creator Email nhutson@usc.edu,nhutson2746@gmail.com

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c89-167981

Unique identifier UC11660414

Identifier etd-HutsonNath-7406.pdf (filename),usctheses-c89-167981 (legacy record id)

Legacy Identifier etd-HutsonNath-7406.pdf

Dmrecord 167981

Document Type Dissertation

Format application/pdf (imt)

Rights Hutson, Nathan

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the a...

Repository Name University of Southern California Digital Library

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