Chinese languageclasses grow popularAmbitious Kazakhs seeMandarin skills, ratherthan English, as thekey to landinga goodjobPage 4

www.ft.com/reports | @ftreportsTuesday May 10 2016

Inside

New paths for laptopsand frozen chickenSuppliers look for waysaround Russian traderestrictionsPage 2

Railway between Chinaand Iran opensOverland route takesjust 14 days comparedwith 45 days by seaPage 2

T he ancient trade in silk,spices and slaves betweenChina and Europe turnedcentral Asian oases intowealthy business hubs.

Now, with China seeking to rebuild theSilk Road as its signature foreign policyinitiative, countries across post-Sovietcentral Asia, the Caucasus and beyondare hoping China’s westward expansionwillonceagainbringthemriches.

The investments “will revitalise eco-nomic activity and trade in this part ofthe world”, says Erlan Idrissov, foreignministerofKazakhstan.

They are much needed. With fallingcommodity prices and recession in Rus-sia, growth in central Asia and the Cau-casus is set to fall to a two-decade lowthis year, according to the InternationalMonetaryFund.

“This set of shocks is likely to persist,”says Masood Ahmed, IMF director forthe Middle East and Central Asia. “The[newSilkRoad] initiativecanbringsub-stantialadvantagesandgains.”

The effects of Beijing’s new “One Belt,One Road” policy, unveiled in 2013,however, remain unclear. Two decadesof hefty investments since the break-upof the Soviet Union have already madeChina the pre-eminent economic powerincentralAsia.

China’s trade with the region rose

from $1.8bn in 2000 to a high of $50bnin 2013, says the IMF. Chinese compa-nies own close to a quarter of Kaza-khstan’s oil production and account forwell over half of Turkmenistan’s gasexports. China’s state Eximbank is thelargest single creditor to impoverishedTajikistan and Kyrgyzstan, respectivelyholding 49 and 36 per cent of their gov-ernmentdebt.

Officials have seen a rush from Chi-nese bureaucrats and businessmeneager to brand projects as part of thenew Silk Road. Initial discussions havefocused on infrastructure and exporting

overcapacity in China’s industrial sector— sometimes by literally movingunneededfactoriesandequipment.

Gulmira Isayeva, Kazakhstan’s dep-uty agriculture minister, says Chinesecompanies are in negotiations to invest$1.9bn into Kazakh agriculture —including one project that would see therelocation of tomato processing plantsfromChinatotheKazakhsteppe.

New trade routes are opening, withrail commerce between China andEuropemorethandoubling lastyear.

While Beijing insists its Silk Roadplans are not a geopolitical gambit,

some parties are wary of China expand-ing its economic presence. The creationof financial architecture to fund “OneBelt, One Road” — including the $40bnSilk Road Fund and the $100bn AsianInfrastructure Investment Bank — metresistance from Washington and Tokyo.From Russia, which is promoting itsown integration project, the EurasianEconomic Union, China’s plans receiveda cold reception and were “perceived as‘they’re trying to steal central Asia fromus,’”saysAlexanderGabuevat theCarn-egieMoscowCentrethink-tank.

A combination of careful Chinese

China revives old path to profitBeijing’s initiative hasled to bothwelcomingandwary reactions,reports Jack Farchy

diplomacy and Moscow’s economicwoes led to an agreement in May 2015 to“co-ordinate” the projects. The AIIB willwork with the Washington-led WorldBank and Tokyo-led Asian Develop-mentBankonmanyinvestments.

“Two years ago people were sayingthis is an imperialistic move,” says AgrisPreimanis, centralAsiaeconomistat theEuropean Bank for Reconstruction andDevelopment. “Now, partly thanks tothe way the Chinese have played it,partly because of the economic situa-tion, it is shapingup.”

Some concerns remain as China’sinfluence grows. In a recent outburst,leaked online, China’s ambassador toAstana, Zhang Hanhui, upbraidedKazakhstan over visas difficulties facedby diplomats’ families “[China] is thesecond-largest economy in the world,”he said. “Like it or not, favourable con-ditionsshouldbecreated.”

Local people are suspicious of China’smotives. Protests broke out in severalprovincial towns in Kazakhstan in Aprilover a new land code and fears that thegovernmentcouldselloff landtoChina.

Othersworrythat thenewSilkRoadissimply a subsidy for Chinese companiesand that local people will see little bene-fit. Corruption is rife in the region andChinese projects have been no excep-tion. In April, a scandal over the alloca-tion of a road-building contract to a Chi-nese company led to the resignation oftheKyrgyzprimeminister.

“Chinese money will definitely boostus,” says one Kazakh executive. “It isbeautiful. But who will get the benefit?The man in the street or someone inpower?”

How the projects willbe financedForeign investors arejoining Chinese policybanks in providing fundsPage 4

Ancient ways: Venetian merchant Marco Polo travelled to China along the Silk Road in the 13th century

The New Trade RoutesSilk Road Corridor

FT SPECIAL REPORT

2 | FTReports FINANCIAL TIMES Tuesday 10 May 2016

CaspianSea

BlackSea

Kars

Atyrau

Erzurum

Ceyhan

Kazan

Tbilisi

Baku

Moscow

Tehran

Ankara

Kronstadt

Istanbul Poti

Aktau

Bandar Abbas

TURKEY

RUSSIA

IRAN

Baku–Tbilisi–Ceyhanpipeline

TransAdriaticpipeline(TAP)

Trans-Caspianpipeline

Trans-Anatoliannatural gas

pipeline(Tanap)

1

The New Trade Routes Silk Road Corridor

I f the ancient Silk Road developed toenable trade in fine cloths andspices, the new one will transportcomputer equipment and frozenpoultry.

In 2011, Hewlett-Packard startedsending laptops and LCD screens fromChongqing in south-west China to Duis-burg in Germany by train rather thanboat, pioneering a renaissance in over-landtransportacrosscentralAsia.

More recently, new trade routesacross the region have opened to trans-port frozen chicken. In particular, thisfollows Russia’s imposition of traderestrictions on western agricultural pro-duce.

To bypass Russia, US suppliers ofchickentoKazakhstanhavebegunship-ping via the Black Sea and onwardthrough Georgia, Azerbaijan and acrossthe Caspian Sea to Kazakhstan, saysSanzhar Yelyubayev, chief executive ofKTZ Express, the logistics subsidiary ofKazakhstan’s national rail company.“We are in the middle of practically allroutes which come and go to China andEurope,”hesays.

Across the region, overland traderoutes, which through a combination ofpoor infrastructure and political prob-lems have been neglected for centuries,areopeningup.

In February, cargo trains began run-ning from China to Iran via Kazakhstanand Turkmenistan. Late last year, DHLstarted shipping goods from China toTurkey across the Caspian and BlackSeas.

The new transit routes represent a“broadening” of China’s vision of a newSilkRoad,saysRaffaelloPantucci,aspe-cialist on the region at the Royal UnitedServices Institute (Rusi), a British

defence and security think-tank. “Itisn’t just a train set that starts inUrumqi, goes to Kazakhstan and Russiaand ends up in Europe. There is evi-dencethat theroute isbroadeningout.”

The nascent trade routes are theresult of billions of dollars of investmentin rail, road and port infrastructure byChina, other governments in the regionandinternational financial institutions.

They are also a function of politicalshifts. China’s new Silk Road — what itcalls the “One Belt, One Road” strategyof ports, pipelines and railways acrosscentral and Southeast Asia — is a primefeature of its foreign policy. The Rus-sian-led Eurasian Customs Union —and, since2015, theEurasianEconomicUnion — have reduced bureaucracy atborders fromcentralAsia toBelarus.

The relaxation of western sanctions

against Iran is also having far-reachingeffects.

It is difficult to miss the symbolism ofthe emerging trade flows along the oldsilk trade routes, but the new Silk Roadremainsatanexperimental stage.

Mr Yelyubayev predicts that just 50trains will ply the route from China toIran this year and a further 50 trainloads of goods will make the journeyacross theCaspian.

Most overland trade from China toEurope uses the “northern route”through Kazakhstan, Russia and Bela-rus. More than 1,250 trains made thisjourney last year, carrying 47,400 con-tainers—a40-fold increase from2011.

The route is attractive to electronicscompanies like HP for which the shortertransit time compared with shipping bysea is worth paying for. The journeyfrom China to Europe currently takes13-16 days, compared with a month ormorebysea.

The cost of transporting one con-tainer by rail to Europe is some$8,000-$10,000. That is more thantwice the cost of shipping by sea but itcan make economic sense for someproducts. Mr Yelyubayev says KTZExpress is working with Toyota, whichdispatches cars and parts destined for the Russian and central Asian marketsfromJapanviaFinland.

Darryl Hadaway, a former head ofDeloitte in the region who is starting alogistics business focused on Kaza-khstan, estimates that if the contents ofa container are worth more than$1m-$1.5m, the additional cost of railtransportation can be offset by thereducedcostof financing inventory.

“We are cheaper than air but fasterthan sea,” says Mr Yelyubayev. Kaza-khstan aims to boost transit trade to1.7m containers by 2020 — a 35-foldincrease over 2015 — in an attempt tocapture 10 per cent of the $600bn tradebetweenEuropeandChina.

Despite the lofty aspirations, the eco-nomic viability of the new Silk Roadremains unproven. Industry experts saythat all rail transport heading west fromChina is heavily subsidised by local andregional governments, eager to do theirpart for the new Silk Road. One industryexecutive estimates that such subsidiescoverhalfof thecostof transport.

Central to improving the economicswill be increasing the use of the route tocarry goods to, as well as from, China, inorder to avoid trains and containersreturningfromEuropeempty.

“We know that at some point subsi-dies will go away,” says Mr Yelyubayev,pointing to speculation that such sup-port will be withdrawn in 2019-2020.“Wearereadyfor this.”

The economic downturn acrossemerging markets is hurting trade.Freight turnover in Kazakhstan fell 12.3per cent last year, according to Kaza-khstan Temir Zholy, the state railwaycompany.

“It’s very difficult to see necessarilyhow it’s going to work at the moment,”saysMrPantucciatRusi.

“I would argue the Chinese have along-term vision at play here. You openthe route up and then the process ofmaking it economically viable is some-thingyouworkonabitdownthe line.”

Alireza Saadat started to trace and doc-ument Iran’s segment of the ancient SilkRoadfouryearsago.

The 47-year-old, who works on con-servation and restoration of archeologi-cal sites, has, together with three femalecompanions, been cycling along theroute, which connected the east to thewest through Persia — stopping fre-quently to gather information on tradeandculture.

They started at Iran’s north-east bor-der with Turkmenistan and they havegot as far as Soltaniyeh, about 250kmnorth-westofTehran.

“Revivalof theSilkRoadcanhelppre-vent more villages on the route frombeing demolished by helping them gen-erate income by revival of overlandtrade,” says Mr Saadat. “This way wecan also help keep their culture, reli-gionsanddialects.”

The centrist government of HassanRouhani has welcomed China’s OneBelt, One Road (OBOR) plan to revivethe Silk Road. Tehran hopes the projectwill facilitate Sino-Iran trade and turnthe country into a significant Eurasiantradehub.

The first freight train to travel the oldSilk Road arrived in Tehran in mid-Feb-ruary, bearing goods from China’s east-ern Zhejiang province and making thejourney through Kazakhstan and Turk-menistan in 14 days — compared witharound45daysbysea.

However, if Iran is to play a significantpart in Chinese plans, it must expandand modernise its 85-year-old national

railway network, which currentlystretches over 11,000km, and carries36m tons of cargo and 26m passengers ayear.

Travel by road is more popular,thankstocheapfuel in theoil-richcoun-try. Iran’s railways account for only 12per cent of domestic transport, withplans to raise this to 30 per cent over thenextdecade.

“Our goal in the Silk Road plan is firstto connect Iran’s market to China’s viarailway for our domestic consumptionand second to send Iranian and Chineseproducts to European markets,” saysHossein Ashoori, deputy head for inter-national transportation of the Railwaysof the Islamic Republic of Iran. “Iran’sgoal isnotreallyCentralAsia.”

Chineseproducts transportedvia Irancould includemineralsandpetrochemi-cals, he adds, while Iranians couldexportpistachiosandcarpets.

Iran-China trade was worth $51.8bn

in 2014, according to official Chinesestatistics — up 31 per cent on the previ-ous year’s $39.54bn and a big increasefrom around $4bn in 2003. This waspartlycausedbyinternational sanctionsover the nuclear programme which fur-ther isolated the Islamic Republic. Dur-ing Chinese President Xi Jinping ‘s visitto Iran this year, the two sides agreed toincrease trade to $600bn over the nextdecade.

Since July 2015, when Iran reached itslandmark nuclear agreement with theUS, UK, France, Russia, China and Ger-many, European and Asian businessdelegations have been visiting Iran toexplore the potential of one of theworld’smostuntappedmarkets.

Development of the national railwayis one of Iran’s infrastructure-buildingpriorities. IranhassignedcontractswithFrance and Germany to renovate sta-tions and restructure the railway sys-tem while it has signed an agreement

First freight trains from China arrive in TehranIran

The overland route takesjust 14 days compared witharound 45 by sea, writesNajmeh Bozorgmehr

Laptops andfrozen chickentake the high-speed wayGoods in transitKazakhstan is anincreasingly importantgateway to China, writesJack Farchy

“We are cheaperthan air but fasterthan sea,” saysSanzharYelyubayev, CEOof KTZ Express

the ground for foreign forces’ interfer-ence”.

But for Mr Saadat the Silk Road hasbeen “the road of peace” along whichethnicities have long coexisted. “TheSilk Road is not only for trade of goods,”he says. “Roads transfer culture, reli-gionsandtechnologyaswell.”

In May last year, Kazakhstan’sPresident Nursultan Nazarbayevannounced a plan to build — withChina — a railway from Khorgos

on the Chinese border to the Caspian Seaport of Aktau. The scheme dovetails with a$2.7bn Kazakh project to modernise itslocomotives and freight and passengercars and repair 450 miles of rail. JK

Khorgos-Aktau railway

China’s “One Belt, One Road”project aims to make central Asiamore connected to the world, yeteven before the initiative wasformally announced China hadhelped to redraw the energy mapof the region. It had built an oilpipeline from Kazakhstan, a gaspipeline that allowedTurkmenistan to break itsdependence on dealings withRussia and another pipeline thathas increased the flow of Russianoil to China.

Chinese companies havefunded and built roads, bridgesand tunnels across the region. Aribbon of fresh projects, such asthe Khorgos “dry port” on theKazakh-Chinese border and arailway link connectingKazakhstan with Iran, is helping

increase trade across central Asia.China is not the only investor in

central Asian connectivity.Multilateral financial institutions,such as the Asian DevelopmentBank, the European Bank forReconstruction and Developmentand the World Bank have longbeen investing in the region’sinfrastructure. The Kazakhgovernment has its own $9bnstimulus plan, directing moneyfrom its sovereign wealth fund toinfrastructure investment. Othercountries, including Turkey, theUS, and the EU have also madeimproving Eurasian connectivity apart of their foreign policy.

This map highlights some of themajor infrastructure investmentsin the region.Jack Farchy

Connecting central AsiaRail and energy infrastructure

A China-led consortium last yearwon a $375m contract to build a770km high-speed railway line

between Moscow and Kazan. Totalinvestment in the project — set to cutjourney time between the cities from 12hours to 3.5 hours — is some $16.7bn.James Kynge

Moscow-Kazanhigh-speed railway

1

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with Italy for a high-speed trainbetween Tehran and the historical cityof Isfahan.

Mr Ashoori says transit of goodsthrough Iran had already increased by90 per cent in 2015 compared with theyear before. Iran’s railway extends toTurkmenistan and Turkey and plansare under way to connect it to Iraq andAfghanistan and later on to Azerbaijanand Pakistan. “Considering the crisis inthe region and Iran’s unique security,this is the best time to expand Iran’s rail-waytransportation,”hesays.

The developments have not been metwith universal enthusiasm. A senioragricultural history researcher,Mohammad Hassan Abrishami, has justfinished writing a book that suggestssilk was produced in northeastern partsof Persia and the southern shores of Cas-pian Sea in 1000BC — long before theproduct was known to China. Mr Abri-shami warns officials to be “careful andnot forget that the old trade also paved

Arrival: first train to Tehran broughtgoods from Zhejiang province

Tuesday 10 May 2016 ★ FINANCIAL TIMES 3

AlashankouKhorgos

Daqing

Skovorodino

Taishet

Kovyktinskoye

Jingbian

Beijing

Astana

Lianyungang

GwadarChahbahar

KAZAKHSTAN

PAKISTAN

UZBEKISTAN

CHINA

AFGHANISTAN

INDIA

KYRGYZSTAN

TAJIKISTAN

TURKMENISTAN

Kazakhstan–China pipeline

Power of Siberia pipeline

CentralAsia–China

pipeline

Central Asia–China pipeline,line D

West-Eastpipeline

Turkmenistan–Afghanistan–Pakistan–Indiapipeline (TAPI)

Central Asia SouthAsia power lines(CASA-1000)

Eastern Siberia–PacificOcean pipeline (ESPO)

54

3

2

6

Trans Asian railway corridors

Trans Asian railway corridors(planned)

Gas pipeline

Gas pipeline(planned)

Oil pipeline

Oil pipeline(planned)

Power line(planned)

1,000 km

Sources: Petroleum Economist;Kazakhstan Railways; UN;

Carec; FT research

The New Trade Routes Silk Road Corridor

TalkofanewSilkRoadmaybe intendedto evoke romantic, non-threateningimages of desert caravans, ancient shipsand trade in exotic commodities. ButChina’s grand plan for a network of rail-ways, highways, pipelines and portsacross central Asia, and around South-east Asia is generating anxiety in NewDelhi.

Withthe3,488kmborderbetweenthetwo Asian neighbours still a matter offormal dispute, Indian strategic policyanalysts are divided on whether China’snew Silk Road project is a strategic andeconomicthreat totheircountry—oran

opportunity. Many see the project —which the Chinese have called One Belt,One Road (OBOR) — as something thatmust be carefully navigated, as Beijingdevelops large projects in countries thatIndiaconsiderspartof itsnatural sphereof influence. However, New Delhi lacksthe financial power to offer a credible alternative.

“The Indian government is very care-ful about the way it handles the Chinarhetoric, and it isn’t ready to come outarms swinging against OBOR, but it issitting with its arms folded making itvery clear that it will not endorse theproject if it doesn’t like the way it wasput together as a Chinese fait accompli,”says Shashank Joshi, a senior researchfellowat theRoyalUnitedServices Insti-tute, a British defence and securitythink-tank.

“They cannot be seen to be outwardlyhostile to a scheme which many smallerAsian neighbours view as a goodopportunity for large flows of Chinese

capital that India cannot deliver,” hesays.

Brahma Chellaney, professor of stra-tegic studies at New Delhi’s Centre forPolicy Research, sees China’s new SilkRoad initiative as a repackaging — inmore palatable terms — of China’s so-called “string of pearls” strategy, whichIndia views as an attempt to strategi-callyencircle it.

The “string of pearls” theory arguesthat Chinese investment in ports insouth Asia is a precursor to developingoverseas naval bases. China has, forexample, already built a major port atHambantota in Sri Lanka, which over-looks important shipping lanes thatcarry much of the world’s oil trade, andwhich India views as strategicallyimportant for itsowndefence.

The visit of Chinese submarines at theColombo port in 2014 raised fears thatthe facility’s purpose is not economicbut military. Chinese investment is alsoplanned for ports in Bangladesh and

Myanmar, raising concerns that theymayserve adualpurpose.

“The new Silk Road is just a nice newname for the strategy they’ve been pur-suing,” says Mr Chellaney. “They’vewrapped that strategy in more benign terms. The Chinese dream is pre-emi-nence in Asia, and this goes to the heartof thatdream.”

“It’s not just a trade initiative,” hesays. “What China is doing has a strate-gic element that is increasingly obvi-ous.”

India is most exercised about plansfor a $46bn economic corridor linkingChina and Pakistan, India’s nuclear-armed neighbour and rival. That blue-print envisions goods travelling from

China’s western region to Pakistan’sGwadar, a once sleepy Arabian Sea portnow run by the China Overseas PortHolding Company. It is considered astaging point between central Asia andtheGulf.

Part of the corridor will pass throughPakistan-held Kashmir, a territory thatis still the subject of a decades-old, unre-solved dispute between India and Paki-stan. Indian analysts say that accept-ance of the corridor would effectivelyacknowledge Pakistan’s rights over theterritory now under its control, whileIndia’s own claims over Kashmir have yet to be resolved — something NewDelhi considers unacceptable. “This is alarge scale project bringing People’s Lib-eration Army personnel [said to beguarding some project locations] rightinto the heart of what India considers tobeoccupiedterritory,”MrJoshisays.

At a recent conference in Gwadar,Pakistan’s Army Chief, General RaheelSharif, accused India of deliberately

attempting to undermine the project.“India, our neighbour, has openly chal-lenged this development initiative,” hesaid. “We will not allow anyone to createimpediments or turbulence in any partsofPakistan.”

But wary as India may be of Chineseambitions, analysts say New Delhineeds to take a measured approach tothenewSilkRoad,andembrace individ-ualcomponents.

India is already a member of the Chi-nese-led Asian Infrastructure Invest-ment Bank, which will finance much ofthe infrastructure, potentially giving itsome leverage over how the planunfolds.

“For every belt they create, and everyroad that we create, can we create a sliproad that connects Indian opportunitiesto the larger global market rather thanreject it outright?” asks Samir Saran, ofthe Observer Research Foundation.“Can we . . . use their institutions to ourownadvantage?”

NewDelhi watches anxiously as Chinese influence growsIndia

A $46bn economic corridorthrough disputed territoriesin Kashmir is causing mostconcern, writes Amy Kazmin

“India is carefulabout the way ithandles the Chinarhetoric,” saysShashank Joshi,fellow at Rusi

Kyrgyzstan’s prime minister TemirSariev said in December that theconstruction of the delayedKyrgyz leg of the China-

Kyrgyzstan-Uzbekistan railway wouldstart this year. In September, Uzbekistansaid it had finished 104km of the 129kmUzbek stretch of the railway. JK

China-Kyrgyzstan-Uzbekistan railway

The 3,666km Central Asia-Chinagas pipeline predated the newSilk Road but forms the backbone

of infrastructure connections betweenTurkmenistan and China. Chinese-built, itruns from the Turkmenistan/Uzbekistanborder to Jingbian in China and cost$7.3bn. JK

Central Asia-Chinagas pipeline

China signed agreements withUzbekistan, Tajikistan andKyrgyzstan to build a fourth line

of the central Asia-China gas pipeline inSeptember 2013. Line D is expected toraise Turkmenistan’s gas export capacityto China from 55bn cu m per year to 85bncu m. JK

Central Asia-China gaspipeline, line D

Khorgos Gateway, a dry port onthe China-Kazakh border that isseen as a key cargo hub on the

new Silk Road, began operations inAugust. China’s Jiangsu province hasagreed to invest more than $600m overfive years to build logistics and industrialzones around Khorgos. JK

Khorgos Gateway

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4 ★ FINANCIAL TIMES Tuesday 10 May 2016

The links between the countries andpeoples living along the arteries andveins criss-crossing Asia are nothingnew. For millennia, silk roads, some-times collectively referred to as the SilkRoad, brought peoples, goods and ideasintocontactwitheachother.

Two and a half thousand years ago,Chinese writers set about a systematicapproach to gathering informationabout the peoples beyond the desertsand mountain ranges that protectChina’s interior,assessingtheirmarkets,leaders, strengths and weaknesses. Thatfound a parallel in the works of authorssuch as Herodotus, whose attention waslikewise on the land bridge that con-nectseastandwest.

There was good reason for the atten-tion lavished then on the “heart of theworld” — just as there is today. Twothousand years ago, the significancecame in part because of the naturalwealth — silver, gold and lapis lazuli —found in rich supply in what is now Iran,Iraq, Afghanistan and the central Asianstates. The great cities such as Samar-kand, Mosul and Merv offered greatcommercial opportunities, thanks totheir large, richelites.

Just as important were the connec-tions that linked the cities, towns andoases. Control of these arteries allowedempires to be built — and were crucial intheir fall. Known since the late 19th cen-

tury as the silk roads, these networkscarried goods, merchants and evange-lists who brought ideas about faith andsalvation, enabling the spread of Bud-dhism and Hinduism, Judaism, Islamand Christianity — the latter taking rootquicker and more successfully in Asiathanitdid intheMediterranean.

Trade, though, was the oil in theengine of vibrant exchange over manycenturies. Those who were able to buildcredit networks did particularly well.Minority groups bound over long dis-tances by family connections, religiouspractices and common identities devel-oped systems to lend, borrow and payfor goods that were sometimes thou-sandsofmilesaway.

In late antiquity, it was the Sogdianswho dominated transcontinental trade,while more recently, Armenians playeda prominent role thanks to their linguis-tic skills. Indeed, recent research sug-gests that thesilkroadswere fundamen-tal to the development of Yiddish, atransnational languageof Jewishtradersplyingthesilkroutes.

Many goods were traded along thesenetworks, in both directions, including

spices, silks, minerals and humanbeings — sold in huge numbers in theMiddleAges.

But problems also flowed throughthe arteries: violence and disease,most notably the Black Death, whichoriginated in central Asia and passedfrom town to town, ravaging all in itspath.

Control of highways and cities meantcontrol of taxes. States and leaders withambitions — from the age of Alexanderthe Great to Britain and Russia in the19th century — were drawn to the heartof theworld.

Few understood this better than theMongols, whose vast 13th and 14th cen-tury empire, extending from the Pacificto the Black Sea and Mediterranean,was not characterised by violence andchaos, but by careful and deliberateinvestment into major urban centres.They employed what we would todaycall progressive tax policies, whichencouraged trade within and betweencities to stimulate greater revenues forthestate.

In the 20th century, it was the turnof the Soviet Union and United Statesto wrestle for influence in Afghanistan,Iran and Iraq. Attempting to controlthe countries lying in the “heart ofthe world” was a significant feature oftheColdWar.

Now it is China’s turn to cast itseye towards the silk roads. Thecombination of opportunities andchallenges offered by the “One Belt,One Road” plan would have been famil-iar in the Chinese capital 2,500 yearsago.

Peter Frankopan is author of The SilkRoads: A New History of the World,published by Bloomsbury (UK) and Knopf(USA)

Ancient trade routes werefounded on tax and creditHistory

The ‘One Belt, One Road’plan would have beenfamiliar in China 2,500years ago, writesPeter Frankopan

The New Trade Routes Silk Road Corridor

‘China is the key for yourfuture,” reads a noticepinned to the wall, jostlingfor attention alongside atoy panda, Chinese wall

hangings,andplasticbamboo.On a Tuesday evening at this Almaty

language school several small groupsareengagedin learningChinese.

Viktoriya Nazarchuk, a 33-year-oldpainter, says she became interested inthe language through an enthusiasm forChinese calligraphy. Like most studentsof Chinese in Kazakhstan, however, shealso has an eye on Beijing’s growing eco-nomicclout.

“We need to get acquainted with theirculture, history and language,” she says.“When my level is high enough I plan toteach my little son Chinese, too. He willneedit inhis future life.”

As China’s economic power in theregion grows, Ms Nazarchuk is one of agrowing number of central Asians look-ing to learn Chinese. NurzhanBaitemirov, founder of East-West Edu-cation Group, which owns the languageschool where Ms Nazarchuk is studying,says his focus is shifting. The companyonce specialised in teaching English toKazakhs, but it is now increasingly edu-catingtheminChinese.

“West Kazakhstan [the country’smain oil-producing region] used to beCanadian companies, but they haveshifted and it is now majority Chinesecompanies. It’s better if you speak Chi-nese if you want to get a position,” saysMr Baitemirov,whohas amasters degreefrom Wuhan. The number of studentslearning Chinese is increasing by 5 percent a month, he estimates. “Parents dounderstand that if their child has a goodeducation in Chinese they have good jobprospects,” he says. “They’re seeingthere are a lot of Chinese investmentshere.”

ThenumberofKazakhcitizensstudy-ing inChinahasrisenmorethanfivefoldin the past decade to 12,000, accordingto the China Scholarship Council, a gov-ernment body that helps overseas stu-dents study in China. Beijing, mean-while, has set up 11 Confucius Institutesto promote Chinese language and cul-ture inthefiveCentralAsian“stans”.

Even Kazakhstan’s first family has

endorsed learning Chinese: DarigaNazarbayeva, deputy prime ministerand daughter of the country’s president,in February said that Kazakh childrenshould learn Chinese in addition toKazakh, Russian and English. “China isour friend, our trading partner and thebiggest investor in the economy of ourcountry,” she said. “In the near future,weallneedtoknowChinese.”

Not everyone is convinced. Accordingto public opinion surveys funded by theEurasian Development Bank, only onein six Kazakhs see China as a “friendlycountry”, compared to 84 per cent forRussia and 48 per cent for Belarus. Onthe other hand, China was among thetop three nations most likely to benamedasan“unfriendlycountry”.

“Statistically China is a very impor-tant trade partner of Kazakhstan. But alot of people in Kazakhstan don’t thinkof China as a big investor. They think ofChina as a big problem — people herebelieve China tries to increase its eco-nomic influence without any benefit toour countries,” says Dosym Satpayev, aKazakh political scientist who heads theAlmaty-basedRiskAssessmentGroup.

Part of the reason is historical: whentheir countries were part of the SovietUnion,CentralAsians lookedtoMoscow

for work, education and culture. Thoseties have persisted after independence— as have Soviet-era clichés that paintChina as a threat. Indeed, Sinophobiacould be one of the greatest challengesforBeijing’sSilkRoadproject.

A proposal for China to lease a largearea of land for agriculture triggeredpublic protests in Kazakhstan in 2010.This year there was uproar in the north-western city of Aktobe after it wasreported that the local affiliate of ChinaNational Petroleum Corporation wasrequiring workers to take Chinese lan-guagetests.

The “people-to-people bond” is offi-cially one of China’s five goals in theregion. But analysts say efforts toexpand soft power have fallen short. “Ido not think China has done enough.They have work to do to create a favour-able image,” says Zhao Huasheng, direc-tor of the Centre for Russia and CentralAsianStudiesatFudanUniversity.

At the language school in Almaty,though, Beijing has no image problem.“Chinese people are simple, open andfriendly,” says Yulia Abritsova, a 36-year-old interpreter who visited Chinafor the first time last summer and plansto return for a degree. “It’s a bit like theSovietUnion.”

AmbitiousKazakhs optfor Chineseover English

Languages Beijing is working to overcomeSinophobia in the region, reports Jack Farchy Brushing up: Confucius Institutes promote Chinese culture —Getty Images/China Span RM

“If you want to develop, build a road,”runs the Chinese phrase. Beijing’s granddesign to construct transport linksbetween China and Eurasia representsthe export of this simple philosophy.Beijingbelieves thatbuildingroads, rail-ways and other infrastructure will helpcreateamarket inEurasia for itsgoods.

“The Chinese experience illustratesthat infrastructure investment pavesthe way for broad-based economicsocial development, and poverty allevi-ation comes as a natural consequence ofthat,” says Jin Liqun, president of theAsia Infrastructure Investment Bank(AIIB).

But potential problems abound withfinancing the planned $890bn in invest-ments. The payback period is oftenlong, construction delays are commonand political instability is widespread inthe 64 countries embraced by the “NewSilkRoad”strategy.

The AIIB, a China-led multilateralinstitution with 57 member countries, ispart of the potential solution. However,it plans to increase operations gradu-ally, investing $1.5bn-$2bn in infra-structure this year, $3bn-$5bn next yearandaround$10bnin2018,MrJinsays.

The financing mother lode for the“One Belt, One Road” (OBOR) initiative— as the Silk Road project is known inBeijing — will continue to come frombilateral lending by the Chinese policybanks,analystssay.

“China will most likely have moreimpact operating through the usualbilateral mechanisms such as the policybanks, including the Export-ImportBank of China and the China Develop-ment Bank,” says Sarah Lain, researchfellowat theRoyalUnitedServices Insti-tute,aLondon-basedthink-tank.

The Export-Import Bank of China,which promotes foreign trade and

investment, lent more than $80bn in2015. By comparison, the Asia Develop-ment Bank lent $27.1bn. More than1,000 projects financed by the ExImBank were in 49 countries involved inthe OBOR initiative, according to Xin-hua, theofficialnewsagency.

Not all projects financed by Chinesepolicy banks are driven by commerciallogic, says Tom Miller, an analyst atGavekal Dragonomics, a research com-pany. A $46bn plan to finance an “eco-nomic corridor” through Pakistan, link-ing the port of Gwadar on the ArabianSea to north-west China, is motivatedpartly by the need to find an alternativeroute for oil imports from the MiddleEast to avoid rising tensions in the SouthChina sea. Mr Miller says Chinese offi-cials privately admit they expect to lose80 per cent of their investment in Paki-stan,50percent inMyanmarand30per

cent incentralAsia.Notwithstanding such forecast losses,

Chinese lenders are starting to syndi-cate participation in OBOR projects tointernational private sector investorsandlenders.

“We are seeing a shift among the Chi-nese institutions in the OBOR projectstoward syndication to internationalpension funds, insurance companies,sovereign wealth funds, private equityfunds and others,” says Henry Tillman,chairman and chief executive officer atGrisons Peak, a London-based invest-mentbank.

He says institutions are increasinglyseduced by the promise of long-termreturns of 6 to 8 per cent on OBOR infra-structure. Even some government agen-cies appear keen. IE Singapore, thestate-owned trade development board,has agreed to a partnership with ChinaConstruction Bank to finance OBORprojects, with about $22bn in fundingenvisaged.

‘Not all loans follow acommercial logic’Finance

International private sectorlenders are still tempted bypotential for high returns,writes James Kynge

Contributors

Jack FarchyMoscow correspondent

James KyngeEmerging markets editor

Najmeh BozorgmehrTehran correspondent

Amy KazminSouth Asia correspondent

Christopher CampbellGraphic designer

Maija PalmerCommissioning editor

Steven BirdDesigner

Alan KnoxPicture editor

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