Markets (Page 185)

The EU and European Bank for Reconstruction and Development (EBRD) have recognized the strategic potential of the Trans-Caspian International Trade Route (TITR) to revolutionize Eurasian trade. In particular, they have identified a “Central Trans-Caspian Network” (CTCN), running through southern Kazakhstan, as the most sustainable of three container-transit options for linking Central Asia and Europe.

The TITR is sometimes assumed to be or treated as part of China’s Belt and Road Initiative (BRI), simply because it runs from Asia to Europe. However, this is not the case.

The geopolitical weight of the TITR lies in the fact that it provides a viable alternative to the BRI by focusing on a “Middle Corridor.” This corridor, which includes a trans-Caspian segment, bypasses the BRI’s northern route through Russia and its southern, maritime route.

Azerbaijan and Kazakhstan have been working intensively on the Middle Corridor segment of the TITR since the mid- to late 2010s.

The CTCN newly identified by the European Union and EBRD is in essence a detailed specification of the TITR’s segment in Central Asia. The Middle Corridor is the segment of the route that stretches across the Caspian Sea from Kazakhstan to Azerbaijan, and thence through Georgia (and Armenia if there is peace) to Turkey.

In June, the EU and the EBRD presented a detailed joint study of the CTCN and associated projects in Almaty, projecting a sevenfold increase in transit volumes by 2040. The study proposes a range of facilitating measures, from digitizing transport documents to enhancing public-private partnerships and liberalizing markets.

It also outlines key actions for integrating the CTCN with the EU’s Trans-European Transport Network.

In contrast to the EU’s coherent focus on Central Asia’s participation in the CTCN, Brussels lacks an equivalent focus on participation by the South Caucasus countries. Here, a suggestion recently made by the European Committee of the Regions (CoR) for a more flexible approach toward Eastern Partnership (EaP) countries could be complementary.

The CoR suggests fostering closer ties with local and regional authorities in the region. Implementing this idea holds the potential to increase capacity and transparency of local governments. The TITR provides the ideal opportunity for such a strategy.

That is because the EBRD’s involvement, in particular, signals a green light for international financial institutions to contribute to the corridor’s development. Its work identifies specific infrastructure investment needs across Central Asia. These include such projects as railway expansions and port capacity upgrades. The document in effect represents and provides a preliminary feasibility study for each project.

Azerbaijan role

At present, in this context, Azerbaijan is the moving force that is promoting trade and investment ties to extend the CTCN into the South Caucasus and westward to Europe. It has completed significant advancements in ferry, port, and other transport infrastructure. Oil from Kazakhstan may be delivered through Azerbaijan’s pipelines.

At the same time, Azerbaijan is pursuing discussions about high-speed Internet connectivity and projects in energy, transport and agriculture with Uzbekistan, and discussions about energy cooperation and infrastructure upgrades with Turkmenistan. With the backing of the EU and EBRD, and the proactive approach of countries such as Azerbaijan, the CTCN has the potential to revolutionize the trade landscape of the region.

The TITR, implemented in Central Asia as the CTCN, offers a viable alternative to existing trade routes. It would drive dynamic economic growth and foster long-term, mutually beneficial cooperation.

Realizing the CTCN as a transformative project, not just expediting and streamlining trade but also providing growth opportunities and innovation to the participating countries, requires thinking seriously about how to extend it through the South Caucasus via the Middle Corridor.

Previous attempts to improve Eurasian transport links, such as the Transport Corridor Europe-Caucasus-Asia (TRACECA) program, established in 1993, have had their limitations. Indeed, TRACECA took part in the Second EU-Central Asia Economic Forum, held a week before the EU-EBRD conference in Almaty in May.

However, TRACECA was never focused on a comprehensive, integrated program like the TITR, CTCN or Middle Corridor. TRACECA fell into disuse after the Western enthusiasm of the 1990s and early 2000s dissipated, particularly as less expensive transport routes between Europe and Asia evolved.

Yet the CoR’s opinion, as mentioned above, suggests that it may now be time for the EU to engage more proactively in supporting Eurasian connectivity, including the Middle Corridor, albeit on a different basis.

It may therefore be appropriate to consider the creation of a new, permanent body for this purpose, which could play a role similar to that catalyzed by Baku’s project for the Southern Gas Corridor, now vital for European energy security.

Continue Reading

Even as Ukraine’s counteroffensive pushes slowly forward, some observers are calling for the warring sides to negotiate a ceasefire. This would create a de facto demarcation line separating areas held by Ukrainian forces from those under Russian control at the moment the fighting stops.

Others argue, however, that a ceasefire is unlikely to lead to a durable settlement. For Ukraine, a truce would mean giving its adversary time to regain strength for renewed aggression, while abandoning its citizens to the horrors of occupation in Russian-controlled areas.

Establishing a provisional line of separation would break up long-established administrative and economic structures. This would indefinitely prevent the divided regions from rebuilding and restoring their inhabitants’ security and welfare.

To understand this, let’s look back at how Soviet leaders drew the border between Russia and Ukraine. It was this border that Ukraine inherited in 1991 after the dissolution of the Soviet Union.

And it was this border that Russian President Vladimir Putin denounced on the eve of Russia’s full-scale invasion of Ukraine in 2022, declaring that modern Ukraine was a historical mistake arising from early Soviet border-making policy.

Map 1. Ukraine in 1991:

As research has shown, Russian and Ukrainian communists who in 1919 mapped out the border between Ukraine and Russia took as their starting point the former Russian empire’s provincial boundaries.

These had evolved haphazardly over centuries and reflected neither the geographical distribution of Ukrainian and Russian speakers nor economic considerations, such as transport links, the location of industries or flows of goods to markets.

Over the next decade, Moscow repeatedly moved the border with the aim of shaping a Ukrainian Soviet Republic that, while retaining a majority Ukrainian-speaking population, could also build a strong and sustainable economy. This meant drawing borders to facilitate rational planning and the integrated development of industry and agriculture.

In some cases, the Soviet authorities involved local officials and residents in border-making. Regional interests, however, were always subordinated to the needs of the Soviet economy and the imperative of maintaining central political control.

Map 2: Ukrainian borders between 1917 and 1938

For example, the districts of Shakhty and Taganrog were initially incorporated in the Ukrainian Soviet Republic as they had a majority of Ukrainian speakers. In 1924, however, they were transferred to the Russian Soviet Federative Republic (RSFSR) for economic reasons.

By contrast, Putivl’ district had been allocated in 1919 to the RSFSR, as most of its population was Russian-speaking. Despite this, in 1926 the district was integrated into Soviet Ukraine after Ukrainian officials and local residents made the case that its markets and transport links were within that republic.

In 1954 Soviet leader Nikita Khrushchev transferred the Crimean peninsula to Ukraine. However, this was not a “gift”, as commonly reported, and even less an “exceptionally remarkable act of fraternal aid” on the part of the Russian people, arising from its “generosity” and its “unlimited trust and love” of Ukrainians, as Soviet politicians at the time declared.

Rather, as recent analysis shows, it was a strategic decision with multiple motives. Khrushchev aimed to reinforce central Soviet control over Ukraine by incorporating Crimea’s large ethnic Russian population, after a decade of Ukrainian nationalist insurgency in the newly annexed western regions.

At the same time, Khrushchev hoped the transfer would win him the support of Ukrainian communist elites, bolstering his bid for supreme power in the factional struggle that erupted after Stalin’s death in 1953.

Construction of a vast irrigation system unifying Crimea and southern Ukraine was already underway, to be fed with water from the Kakhovka reservoir on the Dnipro River via the North Crimean canal. For the purposes of planning and carrying out this mega-project, only completed in the mid-1970s, the transfer of Crimea to Ukraine also made economic sense.

Border-making across the Soviet Union attempted similarly to balance many different, often competing, criteria. Where these borders were drawn to a large extent determined the subsequent course of Soviet history and, since 1991, has shaped the internal development and external relations of states and societies across post-Soviet space.

Invasion and annexation

In February 2022, Russia launched its full-scale invasion of Ukraine, seeking to revise the post-1991 border settlement. By that summer its army had occupied large parts of the four eastern Ukrainian regions of Donetsk, Luhansk, Kherson and Zaporizhzhia.

In September, on the Kremlin’s orders, Russian-installed leaders of these regions organized a series of plebiscites. These asked residents in occupied areas if they wished their region to become part of the Russian Federation.

Voting took place watched by armed soldiers and counting was unmonitored. The polls – denounced by UN officials as “illegal” – unsurprisingly yielded vast majorities in favor of joining Russia.

On September 30, 2022, Putin declared Russia’s annexation of these regions. Four days later the Russian state Duma ratified this.

However, even at the moment of annexation large parts of these territories remained under Ukrainian control or were threatened with imminent recapture. In November, the Ukrainian army liberated the city of Kherson.

Its 2023 counteroffensive is now slowly but steadily taking back land in several areas of the annexed regions.

New state borders?

Where, then, does Russia intend to draw its new state borders? In September 2022, Putin’s spokesman Dmitry Peskov refused to give any answer to this.

He reiterated only that Russia had recognized the independence of the Luhansk and Donetsk People’s Republics within the Ukrainian regional borders that had existed before the declaration of these Russian proxy administrations in 2014.

This implied that Russia envisaged incorporating these regions in their entirety. He said nothing about Kherson and Zaporizhzhia.

A ceasefire along a Korea-style demarcation line would fracture the unified territory that Ukraine inherited in 1991. Over and above the political, strategic, legal and moral objections to an armistice that entrenches territorial partition, this outcome would cause intractable economic problems.

Whether a truce held for a few months or many years, it would continue to prevent external investment in the divided regions, draining state resources and preventing vital reconstruction.

A stopgap solution without a permanent settlement – a peace treaty – will only create conditions for further suffering and future conflict.

Nick Baron is Associate Professor in History, University of Nottingham and Stephan Rindlisbacher is Academic Research Fellow at the Center for Interdisciplinary Polish Studies, European University Viadrina

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Continue Reading

Some economists have argued that Washington’s new “friend-shoring” strategy will not significantly hit China’s export machine. Recent trade figures indicate they may have it all wrong.

Yes, they’ve averred, China will export fewer finished products to the West – but it will compensate by shipping more intermediate products to the Association of Southeast Asian Nations (ASEAN) and other developing countries, allowing China to focus on making more high-value products and thus bolster its position in global supply chains.

China’s latest export figures, however, indicate the US “de-risking” strategy may actually be hitting its mark. China’s exports to the US and EU dipped by 12.9% in May, 18.6% in June and 21.9% in July year on year.

The figures have also contracted month-on-month from March to July this year.

China’s exports fell last month even though US consumer confidence has been rising since May. The Conference Board’s monthly Consumer Confidence Index, which tracks US consumer markets, rose robustly to 117 in July from 110.1 in June. The index has been up for three consecutive months on the back of a strong labor market and easing inflation.

Meanwhile, the year-on-year contraction of China’s exports widened to 15.4% in July from 13.9% in June, according to the country’s General Administration of Customs.

China’s exports fell 5% year-on-year to US$1.94 trillion in the first seven months of this year, surging from the 3.2% drop recorded in the first six months of 2023. During the period, China’s shipments to the US, EU, ASEAN and Japan dropped 18.6%, 8.9%, 2% and 6.8%, respectively. Together they accounted for 39% of China’s total exports.

China’s exports to ASEAN grew in the first four months but plunged 15.9% in May, 16.9% in June and 21.4% in July from a year earlier.

US Treasury Secretary Janet Yellen, who visited China between July 6-9, said on July 16 that the US would seek to ease tensions with China but continue to push forward its friend-shoring policy of reshaping global supply chains to reduce reliance on China.
 
The US considers both India and Vietnam as friend-shoring partners and Mexico as its top “near-shoring” destination. Yellen visited India and Vietnam to discuss friend-shoring on July 13-21.

Vietnam’s total exports, largely to the US, grew month-on-month between April and July, though they declined 10.6% year-on-year to $194.4 billion over the wider January-July period in line with easing Western demand.

But Vietnam has seen growing manufacturing orders in recent months, narrowing its overall export decline from 16.5% in April to 5.2% in July.

‘Non-economic factors’ 

Chinese officials and government researchers have blamed “non-economic factors” for the country’s recent flagging exports.
 
“In the context of an easing demand in the international market, some manufacturers in China are affected by non-economic factors, and they are forced to transfer orders and production capacity outward,” Cui Weijie, director of the Institute of Industry Development and Strategy, a research unit of the Ministry of Commerce, said on August 8.

“In addition, the previous ‘one-off driving factors’ such as the demand for anti-epidemic tools and ‘stay-at-home economy’ products have eased,” Cui said. “Stay-at-home economy” refers to a trend toward shopping online at home, which gathered steam during the pandemic.

Cui said China is seeking to boost exports of intermediate goods to members of the Regional Comprehensive Economic Partnership (RCEP), a new Asia trade grouping. He said that now that the RCEP agreement has taken effect for the Philippines (on June 2), the scheme will provide more room for Chinese exports over the long run.

He said more than half of China’s exports to RCEP members are intermediate products such as auto and electrical parts, which amounted to 1.71 trillion yuan ($241 billion) during the first six months of this year.

The RCEP is a free trade agreement signed in November 2020 by 15 Asia-Pacific nations including Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand and Vietnam. It took effect at the beginning of last year.

In a media briefing on July 19, Li Xingqian, head of the Department of Foreign Trade of the Ministry of Commerce, admitted that China’s foreign trade was facing an “extremely severe” situation due to mounting “non-economic factors.” 

Li said these factors included some countries’ “decoupling” and “de-risking” strategies, which blocked normal commerce at China’s expense. He said some nations’ politicization of trade has forced orders and production to move out of China.

He said the commerce ministry will help Chinese firms to cope with the “unreasonable trade restrictions.”

Processing trade

Wang Jiguang, deputy secretary-general of the Chinese People’s Political Consultative Conference in Chongqing, said in an article published on August 5 that to stabilize exports China should boost “processing trade”, which refers to the manufacturing of intermediate products from raw materials within free-trade areas and comprehensive bonded zones.
  
He suggests the government should provide more tax cuts and fee waivers to processing firms and ensure that they have enough workers, energy and financial credits. 

Between the mid-1990s and 2008, China’s processing trade accounted for more than half of the nation’s exports. The ratio fell below 50% in 2011, dropped further to 33% in 2016 and plunged to 20% in 2020 as foreign firms shifted toward placing orders with Chinese manufacturers to make finished goods. 

On July 24, a meeting of the Chinese Communist Party (CCP) Central Committee, chaired by General Secretary Xi Jinping, said multiple measures should be taken to stabilize China’s foreign trade and investments. 

The meeting called for supporting pilot free trade zones and ports that are aligned with high-standard international economic and trade rules and implementing more liberalizing measures.

Read: China boosts consumption as services activity slows

Follow Jeff Pao on Twitter at @jeffpao3

Continue Reading