On the border of China and Kazakhstan, an international free-trade zone has become a showpiece of Chinese President Xi Jinping’s (習近平) signature Belt and Road initiative to boost global trade and commerce by improving infrastructure and connectivity.
Chinese state media are filled with stories about the stunning success of Horgos, the youngest city of China’s new Silk Road. Last month at China’s Belt and Road Forum — its biggest diplomatic event of the year — promotional videos about Horgos’ booming economy ran on a loop at the press center.
However, Chinese business owners and prospective investors who had visited the China-Kazakhstan Horgos International Border Cooperation Center (ICBC), told reporters they were disappointed by the disconnect between the hype and reality.
Photo: Reuters
Rather than the vibrant 21st Century trading post of Beijing’s grand vision, Horgos is instead developing a reputation as China’s very own tax haven.
“We were so unimpressed by what we saw that after looking around for three hours, we turned around and drove eight hours straight back to Urumqi,” said a businessman from the capital of China’s far western region of Xinjiang, who only wanted to give his surname Ma (馬), due to the sensitivity of the topic.
Several business owners echoed complaints about poor design and low visitor numbers made by Ma, who visited Horgos to investigate the viability of opening a high-end clubhouse.
“You have got Kazakh farmers walking around with plastic bags full of cheap Chinese T-shirts and you want me to open a club for government officials and businessmen to meet inside the zone — which, by the way, you cannot drive your car into and does not have any five-star hotels?” Ma said.
On the Chinese side of the border there are five malls selling cheap consumer goods, although traders complain there are not enough visitors.
“Sometimes I’ll sit here for a whole day and not make a single sale,” said Ma Yinggui, 56, who has a market stall selling clothes. “Some Kazakhs are rich, but most are poor. They come and haggle over a 20 yuan (US$2.94) T-shirt.”
More than five years after the 5.3km2 trade zone opened, much of the Kazakh side remains empty.
Only 25 of the 63 projects on the Kazakh side have investors, ICBC press secretary on the Kazakh side Ravil Budukov said.
About 3,000 to 4,000 people enter from Kazakhstan each day and around 10,000 from China, he said.
Huang Sanping, a senior Xinjiang government official, told reporters at a news conference in Beijing that he had just returned from a visit to Horgos, a city “performing extremely well. It’s full of vitality and flourishing.”
Beijing has bestowed numerous tax breaks and preferential policies on Horgos hoping to stimulate growth in this strategic border town in Xinjiang, a key link on the new Silk Road between China and Central Asia, where the government says it is battling to defeat Muslim extremists.
According to Horgos’ tax bureau, 2,411 companies registered in Horgos last year, taking advantage of five years of no company tax, and a further five years paying half rate.
At least half those companies are registered in Horgos solely for tax purposes, said Chen Meng (沈萌), director of Chanson & Co, a boutique investment bank in Beijing.
Chinese celebrities are opting to register production companies in Horgos and an increasing number of financial services and information technology companies are also registering there, according to Guan Xuemei from Shenzhou Shunliban, a tax advisory firm that recently opened an office there.
However, with no obligation to operate from Horgos or even in Xinjiang, it is unlikely this policy will create jobs or bring money to what has long been an economic backwater, experts say.
“In theory this is a good policy because it aims to stimulate the local economy,” Shen said. “But Beijing didn’t think through the fact lots of companies wouldn’t actually want to operate from Horgos which is very far away from China’s economic centers.”
Those who do trade in the “free-trade zone” find they face restrictions from both sides.
The Russian-led Eurasian Economic Union (EEU) — of which Kazakhstan is a member — limits traders from the Kazakh side to importing up to 50kg of any goods per month duty-free.
China bans imports of many food products — the Kazakh goods most desired by Chinese consumers worried about food safety at home — and caps traders from taking more than 8,000 yuan worth of goods out each day.
Plans to develop a parallel special economic zone in Khorgos — as it is known on the Kazakh side — as a logistics hub appear to be having more success.
Trade volumes are sky-rocketing at the Khorgos Gateway dry port in Kazakhstan, where container freight is lifted off Chinese trains and onto Kazakh ones because of different gauge rail tracks.
Electronics giants Foxconn and HP both ship goods through the dry port, which is faster than sea freight but cheaper than air cargo.
“The free-trade zone doesn’t need to be that successful if the intercontinental trains and roads take off,” Ma said. “In the grand scheme of things, that’s the main role for this part of the world.”
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