Will China-Central Asia Summit provide new opportunity for China's textile industry?

From May 18 to 19, China-Central Asia Summit was held in Xi 'an. During the summit, China and the five Central Asian states reached a series of important cooperation consensus and established a meeting mechanism between the heads of state of China and the five Central Asian states. In the context of accelerated "reducing China exposure" of the United States and the West and sluggish domestic economic situation, Central Asia, as an important hub of the "Belt and Road Initiative", will be more closely connected with China in the future.

With blockades on its southeastern coast, Central Asia is a must-pass route for China to reach the Middle East, Africa, and Europe over land. It borders Russia to the north and Afghanistan to the south. In fact, since the collapse of the Soviet Union, Russia has been the largest trading partner for Central Asian countries, and the land transportation of the five Central Asian countries without access to the sea has been mostly blocked by surrounding major countries. Their import and export trade rely largely on Russia. The convening of this summit actually involves the geopolitical game between Asia and Europe and seeks a new way out for the import and export trade of the five Central Asian countries.

For the textile industry, there is considerable potential in textile industry cooperation between China and Central Asia. In 2022, China's total exports to and imports from the five Central Asian countries were only 42.365 billion US dollars and 27.873 billion US dollars, accounting for only 1.18% and 1.03% respectively, indicating huge potential for future cooperation. From January to April 2023, China's total imports and exports with the five Central Asian countries amounted to 173.05 billion yuan, a year-on-year increase of 37.3%. Among them, imports of energy products such as coal, crude oil, and natural gas from the five Central Asian countries reached 32.45 billion yuan, accounting for 55%; imports of metal ores totaled 10.59 billion yuan, up 13.7%; and imports of agricultural products came in at 2.58 billion yuan, an increase of 42.9%. Exports of mechanical and electrical products stood at 51.58 billion yuan, a year-on-year increase of 68.3%, accounting for 45.2% of the total export value. Exports of labor-intensive products such as textiles, clothing, footwear, etc. amounted to 47.4 billion yuan, an increase of 75.2%, accounting for 41.6%.

On the one hand, Central Asia is rich in cotton, wool, leather and other resources, and the Central Asian countries have successively taken the textile industry as the basic industry of national economy. On the other hand, the local textile industry in Central Asia has been developing slowly due to its small scale, few varieties, outdated equipment, low technical level and imperfect system. While the entry of Chinese enterprises can fill the technological gap. Chinese textile enterprises have been investing in Central Asia since 2002, and their investment in the textile industry is still growing.

According to publicly available industry information, in the Central Asian region, Tajikistan has abundant water resources and a larger potential for electricity generation, with an electricity cost of about 0.35 yuan/kWh, and the average post-tax wage of local workers is 800-1,000 yuan. The electricity cost in Uzbekistan is about 0.25-0.28 yuan/kWh, and the average monthly wage is around 1,000 yuan. At the same time, Chinese textile companies investing in Central Asia can enjoy tax incentives. For example, in Tajikistan, companies can enjoy different tax reduction standards for different periods according to the size of their investment. Companies investing in Uzbekistan can enjoy customs clearance preferences, and there are free economic development zones in each state/province in Uzbekistan where companies can enjoy a tax-free period of seven years.

In addition, under the current global situation, the transfer of China's textile industry to other parts of Asia has become a trend. In previous years, some enterprises have chosen to set up factories in Southeast Asia and other countries to reduce costs and avoid the risk of trade barriers. Compared with Southeast Asian countries, landlocked Central Asia may lose market share in Europe and the United States due to its distance from maritime ports and other reasons, but in coordination with the "Belt and Road Initiative", it can take advantage of local resources and labor force to sell products to China, Central and Eastern Europe, South Asia, the Middle East and other places with the help of China-Europe freight trains, Central Asian railway network and other transportation networks. In the long run, the expansion of Central Asia market is a viable strategic supplement and growth point.

Of course, issues such as the cost of railway transport, multiple tariffs in landlocked countries, and policy support from local governments also need to be addressed. However, the Belt and Road Initiative has made remarkable achievements in the past ten years since it was proposed. The author believes that with the further deepening of national strategy and the signing of various free trade agreements in the future, many problems will be successively solved, and Central Asia will also be an opportunity for the transfer of China's textile industry.