Korgas: Backpackers Give Way to Cargo Trains

October 26, 2015 4:45 PM

Until recently, Korgas, a border town between Kazakhstan and China, was known among backpackers as the most corrupt international crossing on their way through Asia. One backpacker describes her experience: “Once the money was handed over, we unsurprisingly sat and waited for quite some time, whilst the border officers counted their money and licked their lips. It turned out that the money was going mainly on bribes for the guards, just to let us through a gate!”

Things may change, as Kazakhstan has selected Korgas (also written as Khorgos) for building a dry port and a rail yard on its eastern border with China. Kazakh and Chinese politicians expect that the Korgas border crossing will handle 20 million tons of cargo a year by 2020. This is the most significant Central Asian transport project under the New Silk Road initiative, an attempt by China to export financing and construction services to countries in Asia and Eastern Europe.

Kazakhstan has been an early supporter of China’s New Silk Road initiative, seeing it as an opportunity to diminish its dependence on Russia for exports and transit routes. Indeed, the volume of Kazakhstan's trade with China now exceeds that with Russia. Bilateral trade between the two countries increased from $1.3 billion in 2001 to $27 billion in 2014, or almost one third of Kazakhstan's foreign trade.

The Korgas pass is part of a larger New Silk Road investment package for Kazakhstan. In December 2014, China and Kazakhstan signed an investment agreement on infrastructure, energy, and logistics worth over $14 billion. In May 2015, another $30 billion in potential projects were signed, mostly in energy infrastructure, making Kazakhstan the largest single beneficiary of China’s largesse. However, nearly all these projects are yet to be started, and some are not even on the drawing board.

The Korgas pass was long in the making. It was used for cross-border trade from the times of the original Silk Road until 1971, when the Soviets closed it. In December 2011, Kazakhstan completed a 150-mile railway from Korgas to its largest city Almaty, using loans from the Asian Development Bank and the World Bank. The tracks from the Chinese and Kazakhstan sides of the borders were connected the following year, and by the end of 2015 the tracks will be upgraded so that cargo trains can travel on it, making it the second Europe-China rail link via Kazakhstan.

Korgas complements the existing 6,950-mile Yuxinou (Chongqing-Xinjiang-Europe) International Railway from China into Kazakhstan, through Russia, Belarus, and Poland and ultimately to Duisburg, Germany. The economic rationale for Kazakhstan is unclear: Eventually China will be able to ship cargo to Europe more cheaply using rail than using the existing sea routes. But the return trips are empty: There is little to ship from Kazakhstan to China.

Another large Kazakh infrastructure project with Silk Road financing is the 5,100-mile Western Europe-Western China road corridor, which is to become the shortest highway link between Central Asia and Europe. Once completed in late 2016, it will be used to fuel industry in the vast economically-underdeveloped region. The European Bank for Reconstruction and Development, the World Bank, the Asian Development Bank, and the Islamic Development Bank are providing $4 billion in funding for the highway. The New Silk Road initiative has offered another $3 billion towards its completion.

But China is mostly interested in financing projects that transport oil and gas to fuel its economy. As one example, Kazakhstan has received a $1.8-billion loan from the China Development Bank to construct a 800-mile gas pipeline from Beyneu in western Kazakhstan to Shymkent near the Chinese border. From there, the newly-constructed pipeline will connect with the Central Asia–China gas pipeline.

New Silk Road financing is also on offer to construct Pipeline C, a third gas pipeline into China. When all three pipelines are fully operational, they could deliver up to 60 billion cubic meters of gas to China annually—or about half of China’s anticipated demand. This serves China’s needs. How well it serves Kazakhstan remains to be seen.