by Cobus Block.

China’s Xinjiang Uyghur Autonomous Region shares 5,600 km of border with eight countries, including a lengthy 1,700 km with Kazakhstan.  Small wonder, then, that the region has grown into a local trading hub. In 2010 the total value of trade between Xinjiang and Kazakhstan was equal to 17% of Kazakhstan’s GDP.  For Xinjiang in that year, foreign trade value to its GDP was over 30 percent.

Given the importance of cross-border trade to Xinjiang’s economic development and social stability, bilateral trade between Xinjiang and Kazakhstan deserves a closer look. This case provides an excellent example of the prospects and challenges facing trade relations between China and Central Asian countries.

Kazakhstan is a natural market for Xinjiang’s products.  Urumqi, the capital and economic hub of Xinjiang, sits over 3,000 km from China’s eastern coast.  In contrast, it lies only 1,000 km from Almaty—the largest city in Kazakhstan.  While trade to Central Asia was only one percent of China’s total exports in 2010, it made up 83 percent of exports from Xinjiang in the same year.  Kazakhstan is by far the most important destination for exports from Xinjiang accounting for 52 percent of Xinjiang’s exports in 2010.  Nonetheless, the Customs Union, established in 2010 by Belarus, Kazakhstan and Russia, challenges Sino-Central Asian trade relations.

After the fall of the Soviet Union, exports from Xinjiang to Kazakhstan grew yearly.  In the late 2000s, however, bilateral trade between Xinjiang and Kazakhstan faced many challenges related to the global economic recession, social upheaval in Xinjiang and the establishment of the Customs Union.  The traders in Almaty and Urumqi making a living by bringing goods across the border suddenly found business much more difficult as new and unfamiliar regulations were enforced.  Crossing the border had never been easy, but traders and transportation companies had learned how to comply with necessary regulations and circumnavigate others.  New officials and requirements meant re-learning the ropes.  As a result, Xinjiang’s exports to Kazakhstan only moderately recovered in 2010 before falling again in 2011.

Kazakhstan’s entry into the Customs Union may also have triggered structural changes in bilateral trade.  Chinese officials distinguish between “general trade” and “petty trade in border areas”.  General trade covers goods traded by enterprises in China with import-export rights, while border trade refers to the trade of goods in border regions through treaty-authorized ports.  In general, border trade is smaller in quantity and less subject to regulation.  It is the realm of so-called “suitcase traders”—thus named for their tendency to take goods across the border in suitcases in order to avoid paying customs duty.

From 2001 to 2008, border trade exports grew exponentially, while exports in general trade rose slowly.  By 2008, border trade exports were five times the value of general trade exports.  In the wake of the economic downturn and the establishment of the Customs Union, however, border trade exports fell by half and failed to make much of a recovery .  Meanwhle, general trade exports rose quickly , accounting  for almost a third of total exports in 2011.

The establishment of the Customs Union may end the suitcase trade across the China-Kazakhstan border and force some of Xinjiang’s exporters to switch to more regulated methods.  Some in Xinjiang’s academic and business communities see this as a positive development.  Suitcase trade usually deals in low-quality goods, which hurts China’s reputation and the prospects of more forward-looking entrepreneurs.  In other words, although the Customs Union has altered trade patterns between Xinjiang and Kazakhstan, there are still plenty of opportunities for continued bilateral trade.

Cobus Block is a Fulbright Fellow researching trade between China and Kazakhstan.  He is currently based at KIMEP University in Almaty, Kazakhstan

Email: cobusblock@yahoo.com

Opinions expressed in the CPI blog do not represent the views of the China Policy Institute or the School of Contemporary Chinese Studies at the University of Nottingham. They are the personal views of the bloggers/authors.