Such is the power of protests that a small protest in Ata-Bashi of 2,000 citizens was enough to end the international One Belt One Road deal between China and the Kyrgyz Republic (Radio Free Europe, 2020).





Relations with Other Countries

Kyrgyz Republic has focused on a policy of neutrality; sitting between the Middle East, China, and the ex-Soviet states, and being too small to be a self-defending country; calling itself the ‘Asian Switzerland’ (globalsecurity.org, 2013).

In 2014, a United States base supplying forces in Afghanistan for 13 years had been closed down. Russia has continued to maintain a military base in the area (BBC, 2018). Kyrgyzstan has close relations with the other former Soviet states, such as Kazakhstan and Uzbekistan, sharing an economic trade zone and military exercises (globalsecurity.org, 2013).

Recently, Kyrgyz has been turning towards the rising power in the region; China.





Kyrgyz Republic and China

This article is a part of a series of articles on China’s diplomatic efforts in Asia. Previous articles are worth reading if you’re interested:

In 2019, Xi and the leader of Kyrgyzstan signed a $275 million investment deal with China, using 200 hectares of land. Due to massive protests in Ata-Bashi resident, this deal was reversed and abandoned, with the government providing compensation to investors (Radio Free Europe, 2020). The Kyrgyz Republic has also joined the Shanghai Cooperation Organisation (SCO) (globalsecurity.org, 2013).

What does the Kyrgyz Republic have to offer China?

Firstly, there is a lot of untapped farming land on the border of China, which has been a high priority for all of Chinese history and a focus in the latest trade war (World Bank, 2020a). Pastural land has sheep, goats, cattle, horses, and yak; irrigated land provides cotton, sugar, silk, beets, tobacco, fruit, grains, and grapes (globalsecurity.org, 2013b).

Secondly, the Kyzgyr Republic is mineral rich, full of lumber (3.5% of the country is forested), has oil and natural gas deposits, and has a lot of undeveloped land, all of which is useful for China’s One Belt One Road program; China would likely demand a lot of these assets as repayment for the infrastructure programs (World Bank, 2020a; BBC, 2018). Minerals include uranium, mercury, tungsten, mercury, lead, and gold; all of these natural have uses for China (globalsecurity.org, 2013b).

Thirdly, the Kyzgyr Republic sits on the border of China; the greatest threat to Chinese security is that of a sea embargo by the United States. As such, we have seen China create both a Pakistani Economic Corridor and a Myanmar Economic Corridor to escape this threat, as well as focus on weakening the U.S. hold on the Philippines and South Korea. The Kyrgyz Republic, however, shares a border with China, and thus provides a trade partner that does not require the sea, and can provide massive supplies of goods with China acting as the more powerful trade partner to get favourable terms.

So what can China offer the Kyrgyz Republic in return? As the World Bank (2020a) states, there is great opportunity for tourism. In nearby Xinjiang, Chinese tourism brings 150 million tourists in 2018 alone (Xinhua, 2019a). If even 1% of them went to Kyrgyz instead, that would be a quarter of the entire population of Kyrgyz; imagine the economic possibilities for Kyrgyz!

We would expect not only greater spending in Kyrgyz to lead to the more jobs, higher wages as people seek more workers, but also the development of the country via investment to take advantage of the market and a general improvement of living standards.

More of these leads to not only greater tax revenue, but the influx of foreign cash means that the Kyrgyz Republic could store a foreign reserve.





Kyrgyzstani Economy

So what of the Kyrgyzstani economy? Kyrgyz has a gold mine; the mining of which boosted real GDP growth from negative 0.1% to 6.9% over the 2018-2019 period. This gold mine represents 10% of GDP. Another major source for the economy is worker remittances from abroad providing 27% of GDP (World Bank, 2020a). The people have a GNI per capita PPP of $3,000 (as of 2013), and a nominal GDP per capita of $1,277 (as of 2017). (World Health Organisation, 2020a; World Bank, 2020a). It is the second poorest country in the region (globalsecurity.org, 2013).

However, non-gold growth was a more muted 3.1%; while this growth is still respectable, the only dependance on gold to provide growth may lead to the curse of natural resources, and so the benefits of mining gold must be balanced with the risk of inflation. Other industries include food processing, agricultural manufacturing, and textile production (globalsecurity.org, 2013; World Bank 2020a). The World Bank (2020a) has advised that the country expand into a more diversified economy; this is something that makes China’s One Belt One Road attractive as a policy to leaders, even as it is rejected by the people.

Currently, inflation is quite low at 1.5%, and has prompted looser monetary policy over the past year (World Bank, 2020a). Despite what the Libertarians would tell you, inflation is a useful thing and good for an economy (in small amounts; many economists recommend about 3%, and the Central Bank of Kyrgyz is aiming for 5-7%). Future inflation growth is predicted after the increase in teaching wages and state pensions (World Bank, 2020a).

There is a great opportunity for hydroelectricity in the region, as well as oil, petroleum, and gas deposits, making it energy rich (globalsecurity.org, 2013).

We’ve also seen their current account deficit fall to 1.5% of GDP as they export more goods and are transferred money. Their government budget deficit fell to 0.3% of GDP as well. However, the reduction in tax rates did not translate to greater revenue, and so total tax revenue was reduced (World Bank, 2020a). As it seems that economic activity is inelastic to taxation changes (meaning that reducing the tax rate did not lead to greater economic activity to replace the lost revenue), future responsible government spending could provide a Keynesian boost to the economy without great loss of economic activity.

However, due to the Kyrgyz Republic’s use of World Bank money and the strings it comes with, we should likely expect further neoliberal liberation of the markets, with less public expenditure and more tightening of the taxation system to simply allow less loopholes (World Bank, 2020a). Currently, the Kyrgyz government has 98.5% of GDP as external debt; of this, half of it (54.1% of GDP) is government debt. However, both forms of debt (both private and public) have been decreasing (along with government spending), meaning that they are following the World Bank’s suggestions (CIEC, 2020b).





The Risk of Supply Shock

Another broad risk to the Kyrgyz economy is that of supply shock; should their expat workers be unable to send money back, or unable to be employed abroad, or simply stop sending back money, a quarter of annual GDP could effectively disappear. This money is a transfer payment, and would likely be used for investment or consumption; either developing the economy or driving the movement of goods within it. Both are important and a supply shock would be exceedingly painful for the economy.

Another risk of supply shock is in regards to the gold; should prices fall, so will their ability to export, and their trade deficits will rise. If their currency (known as ‘som’) depreciates, then their importing of goods will lead to price inflation of foreign goods and hurt the living standards of those within the Kyrgyz Republic.

The final supply shock risk to food prices; as Kyrgyz imports food, should the price of food rise, so too will the daily cost of eating in Kyrgyzstan, and so the lives and purchasing ability of the common Kyrgyzstani suffer. Governments should seek to stabilise their food supply, especially when developing their country; Kyrgyzstan has the advantage of at least having good pastural and agricultural land.





Trade Partners of Kyrgyzstan

Kyrgyzstan imports from China, Russia, Kazakhstan, Uzbekistan, and Turkey, while exporting to the United Kingdom, Russia, Kazakhstan, Uzbekistan, and Turkey (World Bank, 2020b).