China and Central Asian Countries Jointly Building the Digital Silk Road: Foundations, Challenges and Paths

The digital economy is the most promising new area for China-central Asia cooperation on the Silk Road Economic Belt. Through country-specific policy support and strategic synergy, China can help promote the digital transformation and modernization of Central Asian countries, enhance the development level of Asia-europe digital economy, and build a beautiful and win-win Digital Silk Road.

improvement and economic structure optimization.1 The modern information technology revolution represented by computers, networks, and communications has given birth to the digital economy. The essence of digital economy lies in informationization. The main entities of the digital economy include individuals, enterprises and governments, which can best reflect the requirements of information technology innovation, business model innovation, and institutional innovation.2 Among them, e-commerce and e-government are the most important components of the digital economy and the most important driving force behind the development of a digital economy. The digital economy also includes the digital infrastructure for cloud computing and big data, as well as digital finance and other new models and new business forms based on data, algorithms, and credit. A high internet penetration rate is a necessary condition and foundation for the development of the digital economy. As a combination of the development of the digital economy and the Belt and Road Initiative, the Digital Silk Road is where digital technology supports the Belt and Road Initiative. Relying on internet technology and crossborder e-commerce platforms to promote digital infrastructure, smart payment and logistics systems, the Digital Silk Road aims to become a new engine of the Belt and Road international cooperation, boosting the establishment of cooperation mechanisms.3

Since the arrival of the 21st century, the world has entered a period of economic development led by the information industry. In order to better meet the growing information needs of their citizens and to integrate into the global information society, Central Asian countries have begun to develop information and communication facilities in phases. In a growing number of areas, those countries use modern information and communication

technology and computer technology to lay the foundation for the initial development of the digital economy. In recent years, in order to enhance their levels of economic modernization and conform to the trend of digital development of the world economy, various Central Asian countries have adopted multiple measures to promote a comprehensive and sustainable development of the digital economy.

Digital economy strategies of Central Asian countries

Kazakhstan adopted the Digital Kazakhstan State Program in December 2017, and unveiled a revision and supplementary resolution on the program in December 2019. The plan is due to be implemented from 2018 to 2022, with the medium-term goal of accelerating the economic development of Kazakhstan and improving the quality of people’s livelihood through the use of digital technology. The long-term goal is to create conditions for Kazakhstan’s economy to embark on an innovative development path. There are 17 tasks to be implemented, including: industrial and power digitization, transportation and logistics digitization, agricultural digitization, development of e-commerce and e-government, development of financial technology and non-cash payment, building smart cities, expanding the coverage of communication networks and communication technology infrastructure, ensuring the security of information and communication technologies, improving the residents’ education level and digital literacy, and supporting the establishment of innovative development platforms. The ultimate goal is to raise Kazakhstan’s ranking in the Information and Communication Technology Development Index from the 52nd in 2016 to 30th by 2022, 25th by 2025, and 15th by 2050.4

Uzbekistan issued a Presidential Decree on the measures for the development of the digital economy in July 2018.5 In November 2019,

a draft for discussion and an implementation roadmap of the Digital Uzbekistan 2030 National Strategic Concept were released. The country planned to formulate the National Digital Strategy 2030 by October 1, 2020, and determine short-, medium- and long-term priorities as well as digital development goals before 2030. According to the draft, the main objectives of Uzbekistan’s digital strategy include: ensuring the systematic development of the digital economy, e-government, information and communications technology, and innovative technologies; increasing the digital literacy rate of residents; training high-quality digital talent; promoting remote working methods; expanding telecommunications infrastructure and data processing centers and implementing innovative projects; improving laws and regulations related to the digital economy; raising data collection and processing efficiency; adopting modern IT projects and corporate financing forms; increasing the transparency and accessibility of government electronic orders; establishing risk funds and technology parks to attract foreign investment and promote export-oriented product research and development; and strengthening international cooperation in the field of digital development. Uzbekistan expects that by 2030 it will be able to provide high-quality, secure, cost-efficient, and intelligent high-speed internet and mobile communications, establish a stable and competitive communications and telecommunications market, and reduce the digital divide between urban and rural areas.6

In November 2018, the President of Turkmenistan approved the Turkmenistan Digital Economy Development Concept 2019-2025, which will be implemented in three phases: 2019, 2020-2023, and 2024-2025.7 The purpose is to create favorable institutional and legal conditions for the effective development of the digital economy and improve the digital ecological environment with the participation of the state, enterprises and

citizens. The main tasks include: adopting digital and other innovative technologies in all economic sectors across the country; completing the transition to electronic documents and electronic identification systems; establishing a competitive digital economy; establishing a coordinated electronics industry; and eliminating the digital divide between urban and rural areas. Turkmenistan’s economic digitalization mainly includes two directions: one is to digitalize work processes; the other is to ensure the digital transition of state institutions, enterprises, and other non-state organizations. The main goal is to improve the efficiency of scientific, technological, and innovative activities through digital applications, strengthen international cooperation in the digital field, ensure closer interconnection between science, education, and production, and provide technological and intellectual support for the digital transformation of the economy.8

Kyrgyzstan passed the resolution of digital transformation concept “Digital Kyrgyzstan 2019-2023” in December 2018,9 and unveiled the roadmap in February 2019,10 hoping to accelerate the country’s digital transformation and socio-economic development. The foundation of Kyrgyzstan’s digital transformation includes developing digital skills, improving the legal and regulatory framework, establishing digital infrastructure and platforms, developing a digitalized country, and building a digital economy and management system.11 Kyrgyzstan intends to develop three key areas. First, the digital transformation of commercial production, introducing innovative technologies into the financial and banking industries, cultivating qualified professionals to improve the efficiency and competitiveness of domestic companies, and developing digital

infrastructure and digital platforms in top economic sectors. The second aspect is to take advantage of the digital economy development strategies of partner countries; that is, utilizing the Eurasian Economic Union’s 2025 Digital Agenda to participate in the joint construction of the Digital Silk Road, and supporting other international initiatives for digital infrastructure development in relevant regions. The third aspect is to reduce the obstacles to the research and development of digital technology.12

In January 2019, the Tajikistan government passed a resolution on the results of Tajikistan’s socio-economic development in 2018 and its tasks in 2019, calling for the development of a national digital economy concept and the introduction of digital technologies to socio-economic sectors. In February, a managerial and technical working group was established in accordance with the order of the Ministry of Economic Development and Trade to formulate Tajikistan’s digital economy concept.13 On December 30, the President of Tajikistan approved the Tajikistan Digital Economy Concept. This plan, divided into three stages of 2020-2025, 2026-2030 and 2031-2040, is to be implemented within the framework of the Digital Central Asia-south Asia project (Digital CASA).14 Tajikistan intends to develop the digital economy in the following main areas: developing digital infrastructure; focusing on providing broadband access services for all people at an affordable price; making a transition to a digital government; digitalization of key industries; protecting information and cyberspace security; developing human capital; and establishing an innovation

ecosystem.15

Rapid growth of e-commerce

First, e-commerce has been growing rapidly across Central Asia. For example, Kazakhstan’s annual growth rate of e-commerce was 26 percent from 2013 to 2014, and the figure has accelerated to 30 percent on average since 2015. In 2018, the number of online shoppers in Kazakhstan reached more than 2.3 million, and the transaction volume of online shopping reached 259.5 billion Kazakhstani tenge (about US$753 million), up 50 percent over the previous year.16 There are more than 1,700 independent online stores and about 20 e-commerce platforms providing sales services for more than 1 million small- and medium-sized enterprises.17

Second, many policies related to e-commerce have been introduced. Kazakhstan’s E-commerce Development Roadmap before 2025 was approved in 2019, and it clarified three main development directions: expanding the scale of e-commerce exports, attracting enterprises to participate in e-commerce development and infrastructure construction, and strengthening consumer rights protection.18 The government of Kazakhstan has also formulated tax incentives for e-commerce practitioners, with the guarantee of law. Uzbekistan adopted the Concept of Developing E-commerce in Uzbekistan 2016-2018 as early as in December 2015.19 In 2018, Uzbekistan issued a presidential decree on measures to accelerate e-commerce development and determined the country’s e-commerce

development plan for 2018-2021, which involves six major areas: improving the legal, regulatory, and management frameworks of e-commerce development; creating a favorable environment for e-commerce; strengthening export capabilities and international e-commerce cooperation; developing e-commerce logistics infrastructure; cultivating human resources in the field of e-commerce; and raising public and business awareness of e-commerce.20

Third, emphasis has been placed on the construction of logistics platforms. For example, Kazakhstan has significantly improved its logistics efficiency by improving its postal services. Currently, about 120 companies in Uzbekistan are engaged in international express delivery business, and the country’s e-commerce services have witnessed great progress.21 Kyrgyzstan is formulating plans for storage and processing facilities of agricultural products according to the supply of commodities, and attracting investors to develop a system of agricultural trade and logistics centers.22

Improving e-government capabilities

First, the range of e-government23 applicability in Central Asian countries is gradually expanding. The e-government of those countries have now covered administrative agencies at all levels of government as well as national legislative, judicial, and other public organizations. The e-government functions include not only electronic and networked office on intranets between government departments, but also extranet-based information sharing, real-time communication and collaborative work, and

two-way internet-based information exchange between government agencies and various public entities. Because of the prevalence of e-government among administrative agencies, there have been considerable improvements in the administrative efficiency and transparency of governments in Central Asia. A case in point is Kazakhstan. It provided public services on portal websites about 40 million times in 2016; as of July 2017, Kazakhstan had offered more than 740 electronic services and 83 mobile services.24 The government portals of Kazakhstan, Uzbekistan, and Kyrgyzstan provide their citizens with opportunities to interact with government agencies. By contrast, the e-government development in Tajikistan and Turkmenistan has made slow progress, due to their inadequate information and communication technology infrastructure, low computer literacy rates, and limited internet access.25

Second, the e-government capabilities of Central Asian countries are constantly improving. The United Nations E-government Development Index (EGDI) reports on the state of e-government development in all member states. It evaluates the e-government performance level of each country from three important aspects: the scope and quality of online services, regional cooperation in communications infrastructure, and human resources development. According to its 2018 report,26 Kazakhstan, as an upper-middle-income country, saw significant improvement of its online performance and services from 2016 to 2018, with its EGDI values rising from “high” to “very high.” In 2018, it ranked 39th among 193 countries and became one of the 40 countries with “very high” EGDI values. Uzbekistan and Kyrgyzstan ranked 81st and 91st respectively, moving from the middlevalue group to the high-value group. Tajikistan and Turkmenistan ranked

131st and 147th respectively, moving from the low-value group to the middle-value group.27 Although digital developments in the five Central Asian countries are at different levels, e-government capabilities in all countries have seen consistent improvement and significant progress.

Different levels of economic digitalization

Among the Central Asian countries, the digital economy of Kazakhstan started the earliest and is growing the fastest, followed by that of Uzbekistan and Kyrgyzstan, while Tajikistan and Turkmenistan are the slowest in digital economy development.

2018 was the first year of “Digital Kazakhstan.” In that year, Kazakhstan’s investments in information and communications increased by 40.3 percent. The proportion of institutions with internet access increased from 67.7 percent to 75.1 percent, and the proportion of institutions with internet resources rose from 21.7 percent to 22.3 percent. The total economic benefit of digitalization in Kazakhstan in 2018 was US$578 million. At the end of November 2019, Kazakhstan had 2.5 million fixed internet users, down 1.8 percent year-on-year, as the internet users had gradually switched to mobile phones. By December 2019, there had been 15.2 million mobile phone users across Kazakhstan,28 accounting for about 83 percent of the country’s total population.29 Due to the implementation of economic digitalization, in 2019 Kazakhstan’s annual productivity growth is expected to be between 2 and 10 percent. Its oil field output will increase by 3 percent with a decrease of 10 to 20 percent in production costs; and thanks to precision farming, its agricultural production will increase by 25 to 50 percent.30

In 2018, the export and import volumes of Uzbekistan’s telecommunications and information technology services were US$154.5 million and US$47.1 million respectively, accounting for 5.1 percent and 2.1 percent of its total exports and imports. In 2019, Uzbekistan had 22.5 million internet users, accounting for more than 68 percent of its total population, and had more than 16 million third- and fourth-generation mobile phone users, accounting for more than 48 percent of its population. However, the country only spent US$7.8 million, or 1.5 percent of its total national expenditure, on communications technology.31 In order to integrate its different information systems and resources of different institutions into a single, protected information space, Uzbekistan is cooperating with Russia on a number of projects involving the legalization of value-added tax and the automation of trademarks and cash registers.32 As of October 2019, the number of internet users in Kyrgyzstan, growing 18 percent annually, had reached 2.5 million, accounting for 40 percent of the total population. About 70 percent of the country’s adult citizens use the internet, and about 2 million of them are social media subscribers.33 In Kyrgyzstan 40 percent of the population have bank accounts, 15 percent use internet banking, and 5 percent purchase or sell online.34

As of October 1, 2019,there had been more than 2.98 million internet users in Tajikistan, accounting for approximately 46 percent of its total population, and 6.19 million mobile communication users, including 4.47 million active users.35 In Turkmenistan, the share of internet access for mobile devices increased by 32 percent in 2016, while the access

share of landline phones fell by 56 percent.36 The size of internet users in Turkmenistan has steadily expanded, increasing by 120 percent from October to December 2017 alone.37 In order to further the transition to a digital economy, Turkmenistan plans to establish the Caspian Sea Innovation and Technology Center, in which a “digital economic park” will be set up to ensure the digitalization of major economic activities of Caspian Sea countries.38 In 2018, Turkmenistan’s total investment reached US$11.5 billion, mainly in oil and gas, the digital economy, agriculture, transportation, and communications.39

Foundations for China-central Asia Digital Silk Road

The Digital Silk Road jointly built by China and the Central Asian countries is not a castle in the air. After years of interactions, the two sides have laid a good foundation for digital cooperation.

Digital economy cooperation already in early stage

First, multiple interconnectivity cooperation programs have already been carried out. There is a good foundation in terms of hardware facilities. For example, the Transit Europe-asia (TAE) terrestrial cable network, which connects China’s Shanghai to Germany via more than 20 countries including the Central Asian countries, has been opened. The Urumqi Regional Administration of International Communications Gateway Exchanges for Central Asia and West Asia has been established. And the China-central Asia fiber optic cable, constructed by China Telecom, China