Xinjiang’s Border Trade Weathering Economic Crisis

YANG Ruiqing, head of the Foreign Trade and Economic Cooperation Bureau of Altay, Xinjiang, got a call from Kazakhstan on the first of June this year. “Our vegetable supplies are low, pushing the prices sky high. Would you mind giving a produce fair by the end of the month to cool down the market a bit?” At the other end of the line was Chief of the Foreign Trade Administration for East Kazakhstan State. Before the local harvest season, vegetables there are always several times more expensive than those in neighboring Xinjiang. Yang routinely receives calls for help from his Kazakhstani counterpart at this time of the year.

Produce Trade Flourishing

Altay in northern Xinjiang Uygur Autonomous Region borders Kazakhstan, Russia and Mongolia, and seats the largest number of land ports in China. In the Republic of Kazakhstan on the other side of the border, the mainstay of the economy is animal husbandry; locally grown vegetables are of limited varieties and volumes, and far from meeting local demand. In spring and winter, vegetable prices in Kazakhstan and its Central Asian neighbors C Uzbekistan, Turkmenistan, Tajikistan and Kyrgyzstan C soar to ten times those in Xinjiang.

At the last produce fair in Kazakhstan one month before, Yang Ruiqing had barely set his Chinese booth up when he noticed the stack of packaged strawberries his team brought was already gone. “They were snapped up in the blink of an eye,” he laughed.

According to Urumqi customs statistics, Xinjiang exported 23,000 tons of vegetables, worth US $9.35 million, in the first five months of this year, marking increases of 78.5 and 150 percent respectively over the same period last year. Food is one of the few sectors immune to economic sluggishness. The successive droughts in Central Asia in recent years have added to the spur in demand for Xinjiang vegetables as well. As a result, prices for vegetables exported from the autonomous region, especially tomatoes, potatoes and shallots, are leaping upward.

In 2007 the Altay Foreign Trade and Economic Cooperation Bureau sponsored a delegation of 30 local farmers to Kazakhstan. “The purpose was to help them learn the market there, and consequently motivate them to grow more vegetables,” said Yang. It worked. Jaws dropped when the delegates saw a kilo of cucumbers tagged at 240 tenge, or RMB 15, compared with RMB 1.2 in their hometowns. The huge price disparity kindled Xinjiang farmers’ enthusiasm for stepping up their exports. “The yields from my greenhouse entered the market in mid-March, and fetched a handsome profit,” boasted Feng Chao, a farmer in Jeminay County, Altay. Meanwhile, in a border market in Jeminay a fleet of trucks was being loaded with potatoes, a staple of Xinjiang’s vegetable exports. Most vegetables are sold to neighboring countries under small contracts handled by private businesses, which shipped out 22,000 tons (96 percent of the region’s vegetable exports) in the first five months of the year.

Impact of the Financial Crisis

“The coastal areas may suffer the heaviest blow from the financial crisis, but in a globalized economy, no place C even an outlier like Xinjiang C can completely dodge the impact. In this situation our farmers have to be more responsive to the market,” said an official of Fuhai County.

This remark is supported by hard figures. “In the first quarter of 2009 the value of imports and exports through Jeminay Port dropped 65 percent over that of last year, to US $37.33 million.

The direct cause is the flaccid economy in Central Asia. For instance, Kazakhstan, Xinjiang’s top trade partner, has devalued its currency by more than 20 percent this year. As customs clearance is settled in dollars or euros, the actual customs procedures cost is now 20 percent higher. However, the government imposed price caps on key consumer products to prohibit traders from pushing consumers into a corner with price hikes that might even end up suspending or curtailing business. Besides, the steep rise in unemployment, sagging investment in fixed assets, and declining industrial production in the country have already had unwelcome ripple effects on the foreign trade sector.

“In addition to these exterior factors, Xinjiang adds its own problems to the mix. Its enterprises, importers in particular, are mostly smaller and lack seasoned players C difficult in a fickle market,” Yang Ruiqing added. An example he gave is steel slag imports from Kazakhstan. The import price was RMB 2,300 per ton in June and July 2008, compared with a market price of RMB 2,800 in China. Enticed by the wide profit margin, many local importers amassed huge stockpiles while failing to anticipate a precipitous fall in the price this year. That drop now stands at RMB 1,200. Unable to sell their reserve above or at the purchase price, these companies watched their capital drain away, and many ended up bankrupt.

The market was further complicated by trade protectionism policies, in one form or another, introduced by many Central Asian countries battling the economic slowdown. Russia recently announced its intention to create a customs union with Belarus and Kazakhstan, which many scholars believe will adversely affect trade between the tripartite block and countries near it, including China.

Great Potential

Since April the decline in Altay’s imports and exports has been reversing itself. Yang Ruiqing attributed the change to the geographic advantage and economic potential of the prefecture as well as Xinjiang as a whole. The autonomous region supplements neighboring countries in a broad range of industries, providing extensive opportunities for bilateral trade and economic cooperation.

“For instance we can buy a sheep hide for RMB 5 in Mongolia, which is priced at RMB 60 in Xinjiang,” said Yang. “If we can find leather companies in eastern areas to open a couple of plants here, processing imported sheep hides and exporting those products back to Central Asia, we can give a big boost to the local economy.”

Another hopeful sector is furniture. Kazakhstan is rich in timber resources, while Xinjiang is strong in furniture design and production. “We can do a good business by inviting furniture factories in eastern China to open outlets in Altay. Kazakhstan is both the material supplier and the consumer market.”

Despite tight financial policies and emerging protectionism, most nations in Central Asia are developing countries with robust market demands and a strong desire to woo investment. In recent years many incentives have been mustered to attract more investment in agriculture and processing industries, and to lower import tariffs on civilian goods and mechanical and electrical products.

Wang Haiyan, a researcher with the Xinjiang Academy of Social Sciences, called on the local government to directly confront the worldwide recession. Measures recommended include upgrading port infrastructure, simplifying customs procedures and optimizing the structure of imports and exports.

In spite of all the uncertainties in the world economy, foreign trade officials in Xinjiang share a sustaining optimism C founded on customs reports and producers/exporters’ feedback: the autonomous region will safely sail through the financial storm and grow better and stronger for it.