Is The Middle Corridor Set To Take Off?

By: - November 29, 2023

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Welcome back to the China In Eurasia briefing, an RFE/RL newsletter tracking China’s resurgent influence from Eastern Europe to Central Asia.

I’m RFE/RL correspondent Reid Standish and here’s what I’m following right now.

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Is The Middle Corridor Set To Take Off?

Russia’s full-scale invasion of Ukraine has breathed new life into the Middle Corridor trade route that links Chinese and European markets via Central Asia and the Caucasus, and according to a new report from the World Bank, is poised to grow in the coming years.

Finding Perspective: The new study by the World Bank says that the trade volumes along the Middle Corridor could triple by 2030, where they’d reach 11 million tons of goods. That’s welcome news for the countries along the route and adds some much needed clarity to the Middle Corridor’s potential.

Boosting trade from China through Russia to the European Union has been a focal point of Beijing’s Belt and Road Initiative (BRI), but Moscow’s invasion of Ukraine and the Western sanctions that followed have forced China and the EU to search for other options.

The main alternative is the roughly 6,500-kilometer network of roads, railroads, and ports stretching across Kazakhstan, the Caspian Sea, Azerbaijan, Georgia, Turkey, and into Europe that make up the Middle Corridor, also known as the Trans-Caspian International Transport Route.

Sensing opportunity, local governments have been active in the last two years when it comes to securing new deals on how to grow the Middle Corridor.

With continued investment and policies aimed at breaking trade bottlenecks, the report adds that the route could invigorate regional trade and boost connectivity for countries involved, many of which have traditionally found themselves isolated from the main arteries of global trade.

The World Bank said that increased trade between Azerbaijan, Georgia, Kazakhstan, and the EU are the main drivers of demand along the route, with its models projecting a 37 percent increase in trade between Azerbaijan, Georgia, and Kazakhstan, along with a 28 percent increase between those countries and the EU by 2030.

“Our new data confirms that the Middle Corridor is not only viable but can also become essential to the economies of countries along the route,” said Antonella Bassani, the World Bank’s vice president for Europe and Central Asia.

Why It Matters: The World Bank’s new report suggests that the Middle Corridor’s time is finally on the horizon, but that comes with important caveats.

The route has been around for years and received billions of dollars in Chinese investment in infrastructure over the last decade, but cost concerns and a lack of infrastructure have limited its appeal to major shipping companies.

Prior to the war in Ukraine, Russian trains — which brought goods directly to Europe by rail or port, or entered via Belarus — made up 68 percent of westbound traffic and 82 percent of eastbound traffic for EU-China overland trade.

As the report notes, “considerable progress” has been made recently in pushing the Middle Corridor forward and moving toward the goal of creating a trade route between China-Europe trade and supply chains from geopolitical shocks like those being felt from the war in Ukraine.

But the World Bank’s projections hinge on investments and policies targeted in areas that local governments along the Middle Corridor haven’t always prioritized due to domestic political reasons.

The report also adds that harnessing the route’s potential rests on further digitalization and, most crucially, improved coordination between regional governments that can lower trade barriers and costs, something that has generally proved difficult.

Podcast Corner: What The Israel-Hamas War Means For China

Listen to the latest episode of the China In Eurasia podcast. You can find the show on Spotify, Apple, Google, and YouTube.

Beijing stepped up its diplomacy to position itself as a peace broker amid the Israel-Hamas War. Since Hamas, which is designated as a terrorist group by the United States and the European Union, stormed into southern Israel on October 7, China has positioned itself at the heart of UN talks and hosted its own peace summit last week.

Be sure to listen and leave a review on your listening platform of choice. I’d also love to hear what you think. Reach out at [email protected]

Three More Stories From Eurasia

1. An EU-China Summit In Beijing

Amid growing concerns in Brussels that Beijing is not taking the EU’s concerns on geopolitics and trade seriously, China and the 27-country bloc are set to meet for a high-profile summit.

The Details: The December 7-8 summit will take place in Beijing and be led by Chinese Premier Li Qiang and European Commission President Ursula von der Leyen and European Council President Charles Michel.

Expectations are low leading up to the meeting and so far the two sides are reportedly not planning to issue a joint statement following the summit, something that’s considered a general sign of diplomatic harmony behind the scenes.

Tensions have risen after the European Commission launched an investigation into subsidies for Chinese-made electric vehicles and the EU body is eyeing other sectors such as medical devices and wind energy.

China’s political and economic support for Russia amid its war in Ukraine has also been a sticking point that has worsened ties and contributed to a lack of trust toward Beijing.

As the South China Morning Post’s Finbarr Bermingham reported, this attitude among Chinese officials continues to ruffle the feathers of their European counterparts and adds to a sense that Brussels’ geopolitical concerns are being ignored by Beijing.

During a discussion at the November 23 Friends of Europe Forum in Brussels, veteran Chinese diplomat Ma Keqing dismissed the notion that China and the EU were rivals, and seemed to blame the United States for any tensions between Brussels and Beijing.

“Actually, we were different, many, many years ago, and who have been different for the whole process of our relations. And now, suddenly we have become systemic rivals … so I would like to say that we should have more dialogue and more mutual trust.,” Ma said.

The remarks reportedly led Eva Valle Lagares, the EU’s top trade official for China, to interject from the audience.

“Trust is not built with actions such as blocking all trade with Lithuania. Trust is not built by broadly formulated export controls on key materials that are essential for the green transition, that are formulated in a very broad manner with very nonclear security justifications,” she said.

2. Highway Blues In North Macedonia

North Macedonia is looking to possibly end a highway contract with the Chinese construction firm Sinohydro over delays, but as my colleague Pelagia Stoyanchova reports, doing so will come with its own risks for Skopje.

What You Need To Know: The agreement for the Kichevo-Ohrid highway was signed in 2013 and paid for with a loan from China’s Export-Import Bank, which required the project to be built by a Chinese firm.

That contract was ultimately awarded to Sinohydro, a major Chinese construction company that has faced controversies around the world in recent years for corruption, shoddy work, and environmental issues.

Now, as the agreement nears its 10th anniversary, North Macedonia’s government is frustrated with delays. According to the original contract, it was supposed to be completed five years ago, although only roughly 75 percent of it is completed today.

Skopje now finds itself in a bind over whether to end the contract or continue to endure delays and rising costs.

If the deal with Sinohydro is terminated, the company will likely take the case to an international arbitration court, setting up years of potential litigation that could ultimately see Skopje needing to pay the Chinese company and then be left with having to find a new firm to finish the project.

Should the agreement stay in place, North Macedonia will still need to contend with the same issues that have left the project behind schedule and over budget.

The government has said that it will announce its decision before the end of the calendar year.

The 57-kilometer highway is the most expensive infrastructure project in North Macedonia’s history. It was originally billed to cost $411 million (375 million euros), but has now risen to almost $658 million (600 million euros) amid delays.

3. Power Of Siberia-2 Hits More Snags

Progress on the Power of Siberia-2 gas pipeline is moving slowly, and — according to a new report by the South China Morning Post that cites anonymous Russian and Chinese officials — Beijing is driving a tough bargain in talks with Moscow that could see the project delayed even further.

What It Means: According to the Hong Kong-based newspaper, Beijing is demanding steeper gas discounts and is unwilling to contribute to construction costs for the multimillion dollar China-bound pipeline.

“In terms of construction, [Beijing] wants to make sure that they have no risks and no costs. Russia is the side that foots the entire bill,” a Russian official told the paper.

Discussions over the pipeline were already under way when the project was again discussed on Putin’s visit to China during the 2022 Beijing Olympics just weeks before Russia’s full-scale invasion of Ukraine. Since then, Moscow has continued to emphasize its readiness to begin construction on the pipeline though China has remained largely silent on the issue.

The proposed pipeline would bring gas from the huge Yamal Peninsula reserves in western Siberia to China. Moscow needs Power of Siberia-2 to compensate for at least part of the European Union market it has lost due to fallout from the war in Ukraine.

But Moscow’s bargaining power with its more economically powerful neighbor has weakened over the course of the war in Ukraine and questions remain over Gazprom’s ability to underwrite such a complicated and expensive infrastructure project on its own.

Across The Supercontinent

From Bucha To Taipei: Anatoliy Fedoruk, the mayor of Bucha, the Ukrainian town that was the site of atrocities by Russian soldiers, just wrapped up a four day visit to Taipei aimed at attracting Taiwanese investment into the town’s reconstruction efforts.

A Lithuanian Rapprochement?: China has dropped trade measures targeting Lithuania that amounted to “coercion” as the two governments gradually move toward restoring diplomatic relations following an incident in 2021 over Taiwan opening a representative office in Vilnius.

Law And Order: Top prosecutors from Shanghai Cooperation Organization (SCO) countries recently met in China for a gathering focused on how to better coordinate their mostly authoritarian legal systems with one another.

Attending officials signed a memorandum of understanding to expand cooperation and information sharing, and to hold further talks on how to improve extradition proceedings and asset recovery.

Sweetening The Pot: Ahead of next week’s EU-China summit, French Foreign Minister Catherine Colonna visited Beijing and announced a new visa-free entry deal to China for five EU countries (France, Germany, Italy, the Netherlands, and Spain).

The agreement allows passport holders to stay in China for up to 15 days for business, tourism, family visits, and for transit and it will come into force on December 1.

One Thing To Watch

Tajikistan announced plans on November 24 to link with China’s telecommunications network in order to improve the mountainous, landlocked country’s Internet access.

The Central Asian country has one of the slowest Internet services in the world and the state tightly controls and monitors online activity. The move could improve Tajikistan’s connectivity issues, but it also opens the door for enhanced censorship and control over the Internet into the future.

That’s all from me for now. Don’t forget to send me any questions, comments, or tips that you might have.

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