EU discusses trade with China with Kazakhstan, bypassing Russia

Competition for close cooperation with Kazakhstan between the Russian Federation and the European Union is intensifying. In a recent study of future transport links with Central Asia, the European Bank for Reconstruction and Development identified the “Central Trans-Caspian Network”, which runs through the territory of South Kazakhstan, as the most promising for integration with the Trans-European Transport Network. Readiness for joint work with “European partners” was confirmed last week by the President of Kazakhstan, Kassym-Jomart Tokayev. Despite the desire of the European Union to invest in alternative configurations of China-EU transport corridors, it is too early to consider the issue resolved: the Russian Federation is simultaneously working on the development of the same direction, mastering the “transit potential” of the Northern Sea Route. Which of the routes is preferable for China will probably depend more on economic than not political factors.

Kazakhstan, as follows from the latest statements by the President of the Republic, Kassym-Jomart Tokayev, is ready for joint work with the EU on the integration of the Trans-Caspian International Transport Route with the Trans-European Transport Network. Speaking late last week at the Central Asia-European Union summit, Mr. Tokayev referred to the European Bank’s report on sustainable transport links between Europe and Central Asia. Note that the full report will be published at the end of June, while a summary of the study is available. The published document confirms the thesis that Kommersant discussed with several EEC officials last summer: it was then that Kazakhstan in the near future would become an arena of competition for projects focused on the influx of Western investment, including in terms of the implementation of transport corridors Western China —EU bypassing Russia (see Kommersant dated July 6, 2022).

In its study, the European Bank recognizes the “Central Trans-Caspian Network” (Trans-Caspian International Transport Route (TITR), also called the “Middle Corridor”) as the most sustainable option for developing logistics between China and the EU. Recall that TITR runs through China, Kazakhstan, the Caspian Sea, Azerbaijan, Georgia, Turkey and European countries. According to preliminary estimates, a significant improvement in the route, which in the future can ensure uninterrupted supplies, will require investments in the amount of €18.5 billion. The European Union is ready to take on a significant part of the investments. The funds, as specified in the EBRD report, are needed, among other things, to restore and modernize railway and road corridors, increase port capacity and improve infrastructure at the borders. The investments and policy decisions of the participating countries of the route will be needed in terms of trade facilitation and harmonization of trade rules, market liberalization and improvement of tariff regulation – these issues will be described in detail in the full report of the EBRD.

It should be noted that the development of TITR is also important for Kazakhstan in the context of diversifying export supplies of oil, 80% of which now falls on the Russian-controlled Caspian Pipeline Consortium (CPC). Recall that Astana began looking for alternative routes to CPC after deliveries through it stopped several times last year due to repairs in Novorossiysk (see Kommersant of August 23 and November 1, 2022). The reduced role of Russia in oil supplies from Kazakhstan is also beneficial for the European Union, which directly points to the need for this in the context of general political uncertainty. The balance of supply through the CPC and alternative routes will likely depend on the volume of European investment. They can also have political consequences for Kazakhstan in cooperation with Russia, including through the EAEU.

In addition, by expanding the TITR, Astana is being drawn into competition with Moscow for the China-EU transport corridor. Recall that Russia, which is also interested in passing through its territory, plans to develop the Northern Sea Route for these purposes. The seriousness of intentions can be evidenced by the discussion of this topic at the highest level: in March, Russian President Vladimir Putin, at negotiations with Chinese President Xi Jinping, indicated that “the formation of railway and road corridors in the direction of China-Europe and back through Russian territory” while improving the transport and logistics infrastructure of the Northern Sea Route as a whole remains an “unconditional priority” for Moscow.

Despite the study of the European Bank and other statements by the European side, it is too early to say that the choice of a priority supply corridor has been made. The situation is complicated by the fact that the EU in the near future will probably have to resolve the issue of reducing the dependence of developed countries on trade with China (for more details, see Kommersant of May 15). It should be noted that in 2022, China, as follows from the country’s customs statistics, sold more to the European Union than it bought from it: exports in 2022 amounted to $562 billion, imports – $285.4 billion. The position of China itself remains unclear, for which, however, the choice of route may be linked more to economic than political factors, since the choice to increase trade is likely to be made in favor of a cheaper and more efficient option.

Christina Borovikova