China In Eurasia

BISHKEK, KYRGYZSTAN -- A Swedish consultancy group made international headlines in 2007 when it declared that Santa Claus should be based in Kyrgyzstan, as it was the best place for him to reach every household in the world during his fabled Christmas-night journey.

For those restricted to ground travel, however, landlocked Kyrgyzstan still looks like a logistics nightmare with its soaring mountain peaks and poor roads.

Yet China is undeterred and seems to be pulling out all the stops to turn Central Asia's second-poorest country into its next big project in terms of trans-Eurasian trade.

In a world reshaped by geopolitical turbulence -- and having suffered false starts with China in the past -- Kyrgyzstan will be hoping that this commitment is here to stay.

A $4 Billion Logistics Hub?

October came and went without promised construction work beginning on the China-Kyrgyzstan-Uzbekistan railway: a long-promised, multibillion-dollar megaproject that optimists say could transform East-West trade, cutting delivery times between China and Europe by up to one week.

But there were other significant groundbreakings in Kyrgyzstan last month, and many of them involved China in one way or another.

The most eye-catching and perhaps mysterious was the construction kick start of the Manas Trade and Logistics City in Leninskoye village, not far from the capital, Bishkek.

The trade-hub project will be built by the Hunan Construction Investment Group (HCIG), with its first phase alone costing $700 million and the overall cost potentially reaching $4 billion.

Set on 700 hectares, the project will have dedicated zones for storage, logistics, sales, and bonded trade zones.

Does this project have a special connection to the future railway?

Yes indeed, say Kyrgyz officials.

Except none have yet really explained how, and the track agreed to by the three participating countries is not expected to skirt anywhere near Leninskoye, taking instead the shortest route through deeply mountainous territory. In fact, Leninskoye is on the border with Kazakhstan, close to Kyrgyzstan's existent north-pointing railway.

If Beijing knows more, it's keeping its cards close to its chest.

Speaking at the ceremony on October 17, Chinese Ambassador to Kyrgyzstan Du Dewen praised Kyrgyzstan as "a connecting country" that is "not only important to Central Asia, but also to Asia and Europe as a whole."

Du said that, since the long-stalled railway project was going ahead, Kyrgyzstan would also need "good markets, warehouses, and logistics centers," and hailed the logistics hub as a project in line with China's Belt and Road Initiative, but gave no indication of how it might interact with the track further south.

Planning for the future hub began on December 8, 2023, when Kyrgyzstan’s government signed an agreement with the Kyrgyz-Chinese Investment Holding (KCIH) company to build a "Eurasian trade and logistics complex."

Despite the rebranding -- Manas is a mythical Kyrgyz hero -- Kyrgyzstan’s cabinet will only have a 49 percent share in the project, with KCIH taking the remainder.

A little-known entity founded by Chinese nationals but including Kyrgyz directors, KCIH will be responsible for $482 million of the $700 million investment.

Never Mind The Competition

Making his own speech at the groundbreaking, Kyrgyz Prime Minister Akylbek Japarov (no relation to President Sadyr Japarov) said the logistics center "can be compared to a major seaport."

"Everyone in the world wants to trade with China, because if you look at the volume of global GDP, China produces up to 26 percent of it. We hope this will give us access to maritime routes and enable us to trade with any country in the world," Japarov said.

"This will create excellent conditions for our agriculture, manufacturing, mining industry, and for the arrival of new technologies."

For the moment, Central Asia's largest and most advanced "dry port" is Khorgos on the Chinese-Kazakh border.

Khorgos is a vital node in East-West train freight, with goods still overwhelmingly reaching Europe via Russia.

The Ukraine war and pursuant sanctions have, however, made some shippers leery of the Russian route.

That has provided a giant shot in the arm for the Trans-Caspian International Transport Route (TITR), also via Kazakhstan, with the oil-rich country's Caspian Sea ports providing the jump-off points for goods traveling to Europe via the Caucasus.

If the TITR would exclude Russia, the China-Kyrgyzstan-Uzbekistan railway would potentially exclude Kazakhstan, too, joining up with existing tracks in Turkmenistan and Iran to reach markets in the Middle East as well as Europe via Turkey.

Supporters claim it would be a much faster route to Europe than both, although it is not clear to what extent their calculations take in the greater number of border crossings that this southern middle route would have to contend with.

Russia has previously been viewed as something of a roadblock for the project.

But as a Foreign Policy Research Institute paper published earlier this year argued, Moscow's ability to push back against initiatives like these has been constrained by its need for China's support amid fallout from the Ukraine war.

This "has given Beijing a freer hand to reshape Central Asian trade flows," author Felix K. Chang wrote.

For all that, the three-country railway would be arguably more ambitious than anything China has done in the region, including the 1,800-kilometer Central Asia-China gas pipeline reaching Turkmenistan, whose first spur took just two years to build.

And with the 260-kilometer Kyrgyz section of the track requiring a series of high-altitude bridges and tunnels, very few people will share Prime Minister Japarov’s optimism that it will be finished in four to five years.

Special Economic Zones, Unite!

Given that China is currently responsible for more than half of the minimum $5 billion financial commitment for the track -- $8 billion is the Kyrgyz government's latest estimate -- might Beijing walk away if geopolitical trends shift again?

For the moment, that looks unlikely.

In his latest update on the railway, Prime Minister Japarov said President Japarov had held discussions with Chinese leader Xi Jinping on the project on the sidelines of the BRICS summit, an event that was held in the Russian city of Kazan on October 22-24.

SEE ALSO:

China In Eurasia Briefing: A Brief Guide To The High-Profile BRICS Summit

He added that construction was now expected to begin in November -- a month later than the Kyrgyz president predicted in May.

Fittingly, Kyrgyzstan's prime minister was making those comments during a work trip that was full of Chinese activity.

One of his appearances was for the groundbreaking ceremony for a residential complex that a Chinese company is building in the city of Naryn.

At another he turned a shovel for the construction of four Chinese-built plants in an industrial park that he said will create more than 1,000 jobs.

The industrial park is benefiting from long-term but intensifying cooperation between the Naryn Special Economic Zone (SEZ) and the much larger SEZ in the Chinese city of Kashgar, in Xinjiang.

Prime Minister Japarov visited the Kashgar SEZ in March, some three months after the two entities agreed to deals that included the shared use of warehouses in each country.

Of the four plants being built in Naryn, a car-assembly plant will provide the bulk of the jobs, while three others will produce LED lamps, toilet paper, and agricultural technology, respectively.

Nearly five years ago, Naryn Province, which the railway would traverse, was the scene of a major Chinese investment failure, as local unrest scuttled plans as local unrest scuttled plans for a logistics center that would have been more modest than one that is being built in the neighboring Chui Province.

At that time, China's BRI looked to have hit a bump in Beijing's unrest-prone neighbor. Now it is back on track.

YAR HUSSAIN, Pakistan -- As world leaders gather in Azerbaijan's capital for the annual United Nations climate conference to plan transitioning away from fossil fuel, policymakers will also address the unforeseen obstacles the green transition might bring.

One such scenario is playing out in Pakistan, where soaring electricity prices have made Pakistan's state-owned power supply among the most expensive in South Asia and pushed cash-strapped households and businesses to find relief from rising costs and rolling blackouts by using low-cost Chinese solar panels.

But the flood of ultracheap solar power -- which has seen Pakistan acquire $1.4 billion worth of Chinese-made solar panels and become the world's third-largest buyer in the first half of 2024 -- also risks exacerbating Pakistan's battered power sector, with a debt exceeding $9 billion and falling grid consumption that could move it toward a new fiscal crisis.

For Nasar Khan, a small business owner from the northern town of Yar Hussain, the switch to solar has eased the sky-high electricity costs that have strained his finances in recent years. The green energy source has lowered his monthly bill by nearly a third, close to what he paid five years ago before a spike in prices triggered by soaring global commodity prices. Those savings, he says, have caught the eye of his neighbors and even his cousin, on whose house he is helping to install Chinese-made solar panels.

"The state power rates have become unaffordable for consumers," Khan told RFE/RL. "Everyone who can [afford to] is now trying to switch to solar."

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Pakistanis' Passion For Chinese Solar Panels Worries State Power Supplier (Video)

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Khan and his neighbors in Yar Hussian are hardly the only ones. Across the country of 240 million people, shimmering blue panels dot the rooftops of cities and cover factory buildings as the mass adoption of solar panels sweeps Pakistanis looking to blunt the impact of soaring state energy tariffs.

While this may be good news for the environment and global efforts to adopt cleaner forms of energy production, the shift could bring new headaches for the government as demand for energy from the state power grid shrinks and Islamabad juggles its tenuous financial outlook with the corresponding drop in revenue.

Kaiser Bengali, an economist who worked as an adviser to the chief minister of Pakistan's southeastern Sindh Province, says the influx of Chinese panels has sparked an episode of "circular debt" where those left reliant on the expensive state power grid need to choose between saving money to switch to solar or refuse to pay their bills -- which could, in turn, spark a cascade of unpaid debt from one government company to another.

"[This] means there is a water-supply company that is providing water to us and, of course, they use power, because water has to be pumped," Bengali told RFE/RL. "But if people don't pay their water bills then the water company can't pay the electricity company. And because the electricity company is using gas, they can't pay the gas company, and so on."

Consumption of electricity from the national grid fell by 10 percent in 2023 compared to the previous year amid rising electricity prices and this decrease could deepen as Islamabad faces pressure to increase electricity prices in budget-balancing moves to repay a loan from the International Monetary Fund (IMF).

Pakistanis Looking Off Grid

Against this backdrop, Pakistanis are adapting however they can.

It's not clear exactly how many people are switching to solar panels as an alternative source of electricity. Some households have opted for simple set-ups for their own needs, while others have invested large sums in hopes of selling the energy to the national grid.

Abrar Khan, from the Swabi district in Khyber Pakhtunkhwa Province, says he has been fitting solar-panel systems on houses and businesses for 20 years, but the energy crisis and falling trust in the government's ability to resolve it has triggered a major uptick in installations.

"Domestic and industrial users were fed up with high rates and frequent power outages," he told RFE/RL. "This is why this year and the past year the demand for solar systems has increased enormously."

The roots of Pakistan's power-sector crisis go back decades but picked up steam in 1994 when Islamabad offered lucrative deals to foreign investors to build power plants as the government and its rapidly growing population pursued economic growth.

Called independent power producers (IPPs), these operators secured liberal provisions from the government in the form of sovereign-backed, dollar-indexed returns and commitments to pay for even unused electricity.

Financing mostly flowed to the coal-fired or gas-fueled plants, which left electricity prices largely tied to fluctuations in the global market for fossil fuels, with power tariffs in Pakistan more than doubling in the past three years alone.

The government also scaled-back subsidies and passed the capacity payments made to power producers to consumers, a bane for large sections of society in a developing country like Pakistan where roughly 40 percent of the population lives below the UN-defined poverty line.

Industrial groups complain that energy costs are double those of businesses in India and Bangladesh, and some factories have been forced to shut down.

"Whoever's business is surviving -- [and] I am among them -- it's because of using these solar-energy systems," Ijaz Bacha, a factory owner and spokesman for the marble industry in Khyber Pakhtunkhwa Province, told RFE/RL.

Marble processing is a major industry in the province, and Bacha says between 30 percent and 40 percent of manufacturers there have gone out of business in the past two years.

Bacha says the electricity bill for his facility has dropped significantly since he switched to solar, with his monthly bill going from 2 million rupees ($7,300) to 1.2 million rupees ($4,300). He adds that those savings have kept his business afloat but were only possible thanks to a 25 million rupee ($90,000) investment, a sum many Pakistani business owners would have difficulty raising.

"I believe that in the next year, the majority of the industries [in Pakistan] will switch to solar because survival is impossible without it," Bacha said.

Grappling With Uncertainty

In navigating the intertwined debt and energy problems, consumers say they're dealing with policy whiplash.

In 2017, Pakistan started a system for "net metering" where people can sell excess electricity produced by their solar panels back to the national grid. But in March, the government indicated it wanted to end the net-metering policy to meet IMF criteria for state spending as it tries to stabilize its economy.

Despite concern from the federal government, the provincial governments of Punjab -- home to more than half of the country's population -- and Sindh (more than 50 million people) are now offering free or subsidized solar panels to help low-income households.

The federal government is also renegotiating debts, with the hope of stabilizing the grid and reducing its reliance on fossil fuels.

Pakistani Energy Minister Awais Leghari told the Financial Times in September that the government was renegotiating with Chinese and domestic investors over power-sector debts and exploring ways to privatize certain companies.

But the minister also expressed concern that the continued interest and use of solar panels risks making the grid "unaffordable" due to a sustained loss of paying customers.

"Demand is shrinking off the grid. That's a big concern for us," he said.