The mirage of success in China’s “Belt and Road” initiative

The success painted by Beijing’s state owned media regarding its strategic Belt and Road initiative significantly differs from the reality of the situation.

As part of its central “Belt and Road” strategy, China has created an international free trade zone to boost its position in global trade and commerce.

The central part of this initiative revolves in improving connectivity and infrastructure in the region.

Although the state media has painted stunning success stories of Horgos – its youngest city on the Silk road, as per prospective investors and Chinese business owners, who have recently visited the China-Kazakhstan Horgos International Border Cooperation Center, the reality of the situation is far from that painted by Communist China.

Rather than being a vibrant modern trading post on the Silk Road, Horgos is instead 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 Chinese businessman from Xianjiang, who only gave his lastname as Ma, given the notoriety of the Chinese state.

Similar stories have been voiced by many business owners. Horgos is plagued by low visitor counts due to its poor design.

“You’ve 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 can’t drive your car into and doesn’t have any five-star hotels?” asked Ma.

On the Chinese side, Beijing has made five malls which sells cheap consumer goods. Traders have complained of not having sufficient footfalls in the area to sustain their businesses.

“Sometimes I’ll sit here for a whole day and not make a single sale,” said Ma Yinggui, 56, who has a market stall for clothes. “Some Kazakhs are rich but most are poor. They come and haggle over a 20 yuan ($2.93) t-shirt.”

Although it is five years since the 5.3 sq. km of the trade zone has been opened, much of the Kazakh side remains empty and void.

However, as per Huang Sanping, a senior Xinjiang government official, who spoke on the matter at a news conference in Beijing, he has just returned from a visit to Horgos, a city which is “performing extremely well. It’s full of vitality and flourishing”.

Beijing is pinning its hope of Horgos being China’s Las Vegas. According to its tax bureau, 2,411 companies have registered themselves last year, aiming to take advantage of not paying company tax for the next five years.

As per Meng Shen, Director of Chanson & Co, a boutique investment bank in Beijing, at least half of the companies that have registered in Horgos have done so solely for tax purposes.

As per Guan Xuemei from Shenzhou Shunliban, the trend has also caught up with Chinese celebrities who are opting to register their production companies in Horgos. Chinese IT companies and financial services are also registering there for tax benefits.

Experts say, this tax strategy is unlikely to work in practice since it will not result in job creation or bring money into an economic backwater.

“In theory this is a good policy because it aims to stimulate the local economy. 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 center,” said Shen.

 

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Categories: Creativity, Economy & Finance, Entrepreneurship, HR & Organization, Strategy

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