Weakening Kazakh Optimism about Khorgos
The construction of a dry port in the border town of Khorgos between Kazakhstan and China has been touted by China as a stunning success of the Belt and Road, but the reality on the ground is the opposite.
By Jordan Bekenstein, Analyst
Overland transport is an essential part of China’s Belt and Road Initiative (BRI), which seeks to link China to Europe and create the infrastructure necessary for burgeoning interregional trade. The Khorgos Gateway Dry Port in the China-Kazakhstan border town of Khorgos is a centerpiece of China’s BRI. The project was announced by former Kazakh president, Nursultan Nazarbayev, in 2011, and became part of the BRI in 2013. Construction began that year, and the dry port was in operation by 2015. In total, the project cost approximately 200 million USD, and is the largest dry port in the world. Initially, the project was wholly owned by Kazakhstan through Kazakhstan’s Sovereign Wealth Fund and Kazakhstan Temir Zholy (KTZ), the state-owned national rail operator. In 2018, Chinese state-owned COSCO and Lianyungang Port Holdings took a 49% stake in the dry port, and KTZ retained 51% of the port.
The project draws on the advantages of rail transit, which takes half of the time of maritime shipping, while being considerably cheaper than air transit. Rail is an effective alternative means for transporting high-value Chinese-made goods such as computers as well as China-bound food and wine.
This article uses media sentiment to examine whether Khorgos — both the town and the dry port — has lived up to its promise. What significance does this town have for China and Kazakhstan, and for the Belt and Road Initiative more broadly?
The Khorgos Gateway Dry Port in the China-Kazakhstan border town of Khorgos is a centerpiece of China’s BRI.
A Cross-Border Boom Town Centered around a Dry Port
Khorgos is a border town with around 100,000 residents on the Chinese side yet mostly empty on the Kazakh side. It has sprung up in the middle of nowhere over the past few decades, located at the farthest point on the continent from the ocean. This is where East Asia’s European-gauge rail meets Central Asia’s Russian-gauge rail. In order to continue transit, cargo from Chinese rolling stock must be moved onto rolling stock fitted to Kazakhstan’s wider-gauge rail. This takes place at the Khorgos Gateway Dry Port. This is the largest dry port in the world, processing 73,000 containers in 2015, and is projected to have processed 540,000 containers in 2020. Although this may seem like a large throughput, it is miniscule — for comparison, Shanghai handled 43 million containers in 2019, and Houston handled 3 million containers in 2019.
In addition to the dry port, Kazakhstan also established the Khorgos Eastern Gate Special Economic Zone (SEZ), with promotional material painting the area as a significant cultural and trade zone between East and West. The media enthusiastically called the area a “new Dubai.” Just as Dubai started as a port in the desert and became an international center of commerce and trade, so too would Khorgos become a bustling and significant center in the Eurasian continent.
Kazakh Sentiment Toward “New Dubai” Has Steadily Declined
Interest in Khorgos in Kazakh media steadily grew from 2015, peaking in 2017, but has moderately declined since then. There are still hundreds of news articles about Khorgos per year, but since 2017 the trend has been downward. This is likely because there is less news to report as the Kazakh side of Khorgos has remained mostly empty. Much of the coverage of Khorgos since 2018 has been about local issues, with almost no coverage of international expectations and trade prospects.
Sentiment about Khorgos has also been declining. In the early days of the project, Kazakh media was quite optimistic about the economic prospects of Khorgos. Sentiment started dropping in 2017 as concerns about the emptiness of the Kazakh side of the border grew. There was a slight boost in sentiment in 2018, likely linked to Chinese companies COSCO and Lianyungang Port Holdings buying into the Khorgos Gateway Dry Port the year before, but even this was not enough to stem the overall decline in sentiment.
The growing amount of negative coverage related to the free trade zone and environs, such as smuggling and theft, as well as rising sensitivity to ethnicissues regarding Uyghurs and Kazakhs in neighboring Xinjiang further contributes to the declining sentiment towards Khorgos. Due to the tense political situation in Xinjiang, border control has become tighter, and physical movement within the SEZ is constrained by fences and barbed wire. Meanwhile, Chinese business people, whom Kazakh media anticipated to invest in the region, are now averse to doing so because they see the area as an underdeveloped tax haven with mediocre amenities and petty barter trade as its primary economic activity. The reality is that Khorgos is “just another border town” that has fallen short of the dream of a “new Dubai.”
Another sign of the divergence between expectation and reality can be found in Kazakh and Chinese statistics regarding the Khorgos Gateway Dry Port, which paint a much rosier picture than reality on the ground, with the Chinese side being even more optimistic than the Kazakh side. Kazakh project leaders stated that throughput was expected to jump from 87,000 containers in 2016 to 364,000 containers in 2017, but it actually only grew to 102,000 containers. While KTZ claimed that Khorgos handled 8 trains per day in 2020, Chinese media reported that Khorgos handled about 12 per day for the same year. An additional economic headache is that there are considerably more westbound than eastbound trains, meaning many shipments are simply uneconomical without subsidies from regional Chinese governments. This confusion and opaqueness about the real economics of the dry port may be one of the reasons that there is dwindling positive news.
This confusion and opaqueness about the real economics of the dry port may be one of the reasons that there is dwindling positive news.
Consistent with the overly optimistic statististics, Kazakh media reports more positively about Khorgos than is typical. This positivity has declined steadily from 2015 to 2019, especially among non-government sources, such as Kapital, whereas state-owned Kazinform has remained more positive than is typical for the paper. This indicates Kazakh government efforts to continue to paint the area as attractive, with the hope that this will become a self-fulfilling prophecy over time.
Implications
High hopes and grandiose ambitions at the outset of the Khorgos projects are giving way to disappointing realities about investment and mundaneness. As media sentiment continues to slide, it is unlikely the Kazakh side of the border will develop significantly beyond the dry port, especially as the fallout of the COVID-19 pandemic might make attracting financing for further development more difficult. Clarity regarding the real impact of the dry port and SEZs is non-existent, and the project is ultimately more about flashy state-driven projects than creating a “new Dubai.” This raises questions about the BRI — how many other projects have been announced with great celebration and fanfare, but will turn out to be economically disappointing, and how does the fate of such projects bode for the BRI more generally?
As media sentiment continues to slide, it is unlikely the Kazakh side of the border will develop significantly beyond the dry port, especially as the fallout of the COVID-19 pandemic might make attracting financing for further development more difficult.
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ABOUT THE AUTHOR
Jordan Bekenstein is an analyst at Hillhouse Analytics. A graduate student studying Eurasian, Russian, and East European Affairs at Georgetown University, he has particular interest in Sino-Russian cooperation and competition, as well as political legitimacy in the post-Soviet space. He speaks Russian and Mandarin and previously spent two years teaching English in Harbin, China.
ABOUT HILLHOUSE
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