Striving for Coordinated Development of SCO and BRI

The Shanghai Cooperation Organization and the Belt and Road Initiative are both at a new historic juncture. With shared conditions for coordinated development, they are in a position to give full play to their advantages, further optimize their functions and goals, and pursue mutual improvement and joint development in the new period.

Since its successful membership enlargement, the Shanghai Cooperation Organization (SCO) has become the regional body with the largest population, the largest territory, and great potential for economic cooperation. The Belt and Road Initiative (BRI), since its announcement, has been closely related to the SCO. Member states, observer states and dialogue partners of the SCO are by and large countries along the Belt and Road routes, and also supporters and participants of this initiative. The SCO and the BRI share conditions for coordinated development. Both have entered a new stage of development, and are in a position to make good use of their advantages for themselves and others, so as to benefit all the people of SCO and BRI countries.

Foundation for Coordinated Development of SCO and BRI

The SCO and the BRI have a relationship of mutual influence and cooperation, with excellent opportunities for achieving coordinated development.

First, the SCO and the BRI share a common idea of development. The SCO has adopted the “Shanghai Spirit”, which features mutual trust, mutual benefit, equality, consultation, respect for cultural diversity and pursuit of common development. The BRI upholds the “Silk Road Spirit” characterized by peace and cooperation, openness and inclusiveness, mutual

learning and mutual benefit. Both represent attempts to build a new type of international relations and a community with a shared future for mankind; and the two can be integrated and mutually reinforced. The “Shanghai Spirit” will not only strengthen regional identity and enhance construction of a harmonious region, but will also contribute to the pursuit of the BRI’S five major goals of policy coordination, facilities connectivity, unimpeded trade, financial integration and people-to-people bonds. Meanwhile, the “Silk Road Spirit” plays an important role in promoting common prosperity of SCO countries and enhancing the organization’s cohesion. Due to a shared idea of development, the SCO and the BRI can help each other in political, economic and cultural areas.

Second, the SCO can help with Belt and Road construction. Through its development during the past 18 years, the SCO has made significant achievements in security, economic and cultural dimensions. To begin with, with the “new security concept” as its core, the SCO has established a tight and efficient network for law enforcement and security cooperation, with fruitful outcomes in fighting against the “three evils” of terrorism, separatism and religious extremism, drug trafficking, transnational crimes, and in maintaining border defense. Also, the SCO has established several coordinating mechanisms at the ministerial level on economic, trade and transportation affairs. A number of fundamental documents on economic cooperation and mid- to long-term cooperation guidelines have been signed, including the Program of Multilateral Trade and Economic Cooperation, the Development Strategy of the SCO until 2025, the List of Measures to Promote Project Activities within the SCO in 2017-2021, and the Agreement between the Governments of Member States on the Creation of Favorable Conditions for International Road Transport, etc., which have greatly boosted economic cooperation and facilitation of trade and investment within the SCO region. And lastly, the SCO people-to-people exchanges are rich in content, expanding from culture, education, disaster relief to health and disease control, sports, tourism, media, environmental protection, and preservation of cultural relics. In particular, flagship

programs like cultural and art festivals, film festivals, concerts and art exhibitions have been playing an important role in enhancing mutual trust and understanding among SCO members.

Third, the Belt and Road construction adds momentum to the SCO regional economic cooperation. As is widely known, the SCO countries are very different in terms of economic demand, resource endowment, economic scale and development stage, which has long impeded multilateral economic cooperation. The Belt and Road construction can help the SCO in promoting regional economic cooperation. The BRI represents an initiative for economic cooperation with more comprehensive and welldefined economic functions. The mode of cooperation is more flexible, with bilateral and multilateral cooperation working in tandem. Infrastructure is the privileged field of Belt and Road cooperation, which includes diverse participants and funding sources. This model of cooperation suits Central and South Asia, where the trans-national relations are complex and economic development levels vary greatly. Since the launch of the BRI, SCO members, such as Kazakhstan, Uzbekistan, Kyrgyzstan and Tajikistan, have actively coordinated their development strategies with it. It not only advances the economic development of these countries, but also creates the conditions for strengthening SCO regional economic cooperation in areas such as promoting infrastructure and logistics, and facilitating trade and investment, all of which are preconditions for better regional economic cooperation. As former President Nursultan Nazarbayev of Kazakhstan stated, such kind of policy coordination would create the ideal conditions for establishing an SCO free trade zone.1

Current Status of SCO-BRI Coordinated Development

With the BRI’S in-depth progress, the SCO member states have reached

fundamental consensus on jointly building the Belt and Road, and many of them have coordinated their development strategies with the BRI, resulting in significant achievements.

Active support of joint Belt and Road construction by SCO members

Starting in 2015, the Joint Communiqués of the Heads of State and those of the Council of the Heads of Government (Prime Ministers) at each SCO summit have expressed clear support for Belt and Road construction. During the Ufa summit in July 2015, the member states reached for the first time a basic consensus on jointly building the BRI. In December, the 14th meeting of the Council of the Heads of Government (Prime Ministers) released a joint communiqué, which stated “having confirmed their support of the Chinese initiative on the Silk Road Economic Belt, the heads of government made a Statement on regional economic cooperation. They are convinced that the joint work of the SCO Member States, in close cooperation with the SCO observer states and dialogue partners, inter alia, in the framework of the Silk Road Economic Belt initiative, will contribute to sustained and sustainable economic growth in order to preserve and maintain peace and stability in the region.”2 The communiqué released during the 2016 summit noted that, “the heads of state reaffirmed their support for the Silk Road Economic Belt initiative of the People’s Republic of China. Moving forward, this project will serve as a tool for promoting regional economic cooperation.”3 Released in the same year, the Joint Communiqué of the 15th meeting of the SCO Heads of Government (Prime Ministers) Council stated that, “the heads of government noted the SCO member states’ initiative to establish favorable conditions for developing regional economic cooperation, including China’s Silk Road Economic Belt project (as part of the One Belt, One Road concept). This, they noted, will contribute to

forming new models for international cooperation, strengthen partnership ties between countries, increase investment, and create new employment opportunities.”4

In 2017, the press release by the SCO Heads of State Council meeting said that it highly valued the achievements of the Belt and Road Forum for International Cooperation in Beijing, stating that member states will implement the results of the forum, and will coordinate international, regional and national projects in maintaining sustainable development based on the principles of mutual respect, equality and mutual benefits. Later in 2017, the Joint Communiqué following the 16th meeting of the SCO Heads of Government Council pointed out that, “the heads of delegations of Kazakhstan, Kyrgyzstan, Pakistan, Russia, Tajikistan and Uzbekistan confirmed their support of China’s One Belt and One Road Initiative.”5

In 2018, the SCO Qingdao summit communiqué re-affirmed the support of the BRI by Kazakhstan, Kyrgyzstan, Pakistan, Russia, Tajikistan and Uzbekistan, and expressed appreciation for the joint efforts taken toward its implementation, including efforts to coordinate the development of the Eurasian Economic Union (EEU) and the BRI. Later in 2018, the SCO Heads of Government Council meeting released a communiqué which also reiterated their support of the BRI.

Major SCO members’ participation in Belt and Road construction

Since China proposed the BRI in 2013, the SCO member states have responded positively and participated actively, and made a number of important early achievements.

Coordinated development of Russia-led EEU and the BRI. In May 2015, China and Russia signed a joint declaration on coordinating the Silk Road Economic Belt and the EEU, and announced the launch

of EEU trade negotiation. After five rounds of negotiations, three working group meetings and two ministerial consultations, on May 17, 2018, China and the EEU signed an economic and trade cooperation agreement, which came into effect on December 11. The main issues dealt with in this agreement included customs cooperation, trade facilitation, intellectual property, e-commerce, inter-departmental cooperation and government procurement. Among these, breakthroughs were made in government procurement, intellectual property and quality inspection, thereby expanding mutual market access. This agreement marked the first important institutional arrangement in the economic and trade area between China and the EEU, and was a clear indication that economic and trade cooperation had moved from a project-driven pattern to an institution-led mode. This will further remove non-tariff trade barriers between China and the EEU, improve trade facilitation and provide institutional safeguards for their economic and trade cooperation.

Because of the coordination of the BRI and the EEU, China-russia economic and trade cooperation has made important progress. First, bilateral trade has made great achievements. China continues to hold the status of Russia’s No.1 trading partner. In 2018, China-russia trade volume reached a historic high at US$107.06 billion (the first time it surpassed US$100 billion), an increase of 27.1% compared with 2017.6 The bilateral trade structure also continues to improve. From January to December 2018, the trade in electromechanical and high-tech products between China and Russia increased by 15% and 29% respectively; trade in agricultural products increased by 31%; the two countries are also seeking new drivers of trade growth, such as e-commerce and the service sector.7 At the fourth Eastern Economic Forum, Russian President Vladimir Putin mentioned in particular Alibaba’s joint ventures with three major Russian companies,

stressing that this represented a remarkable achievement in the BRI-EEU coordination.8 Second, cooperation on strategic mega-projects looms large. A second China-russia crude oil pipeline has been completed and started delivery; construction of the Eastern Gas Pipeline is under way and the first LNG tanker from the Yamal project has reached the Chinese terminal via the Northern Sea Route. The China-russia joint venture to develop long-range wide-body passenger aircraft has begun operation, and relevant R&D work has entered a crucial stage; and the heavy-lift helicopter project is moving ahead as scheduled. Third, cooperation at the local level is gaining strength and becoming more extensive. In 2018, on the occasion of the year of Chinarussia local exchange, the two countries signed the Plan on Cooperation and Development in the Russian Far East Region (2018-2024) and the Development Plan for Agriculture in Northeast China and the Russian Far East and Baikal Region, pointing the direction toward further cooperation between the two countries in the Russian Far East. The construction of Tongjiang Railway Bridge and Heihe Road Bridge is proceeding smoothly on the whole, which will further advance cooperation between Northeast China and Russia’s Far East. The China-russia Investment Fund for Regional Development will bring financial support to relevant bilateral cooperation projects.

Coordination between Kazakhstan’s “Bright Road” and the BRI. In September 2016, China and Kazakhstan signed the Program on Coordination between the Silk Road Economic Belt and the “Bright Road” New Economic Policy. China is the second largest trading partner of Kazakhstan. In 2018, the trade volume between the two countries amounted to US$19.9 billion, an increase of 10.1% compared with 2017.9 China is also the fourth largest investor of Kazakhstan, with accumulated

investment of US$29.01 billion by June 2018.10 Industrial capacity cooperation between the two sides has also made progress, with a list of 51 key projects worth US$27 billion agreed, and a fund of US$2 billion established. Until now, three projects have been completed and put into operation, and the construction of 17 more projects worth US$12 billion have been underway or will soon begin, which is expected to bring 20,000 new jobs to Kazakhstan. In 2018, the number of China-europe freight trains that transited Kazakhstan reached 2,792 and the freight volume reached 1.23 million tons, up 31.72% and 48.78% respectively compared with 2017.11 In 2018, the China-kazakhstan Horgos International Border Cooperation Center received 1.22 million tourists, up 8% compared with the previous year.12

Coordination between Uzbekistan’s action strategy and the BRI. In June 2015, Uzbekistan and China signed the Protocol on Enlarging Mutually Beneficial Economic and Trade Cooperation under the Framework of the Silk Road Economic Belt. In 2017, the Action Strategy for Five Priority Areas in Uzbekistan for 2017-2021 was released, the main content and orientation of which is to a large degree in agreement with China’s BRI, bringing new opportunities for the two countries to jointly advance the BRI. China is now the largest trading partner of Uzbekistan. In 2018, the bilateral trade volume hit a record high, at US$6.27 billion, up 48.5% compared with the previous year.13 China is also the largest investor in Uzbekistan, the largest consumer of Uzbekistan’s cotton and provides the most of Uzbekistan’s telecommunications and soil improving equipment. Cooperative landmark projects between the two countries, including gas

pipelines, industrial parks, alkali plants, tire plants, potash fertilizer plants and railway tunnels, have all achieved good economic and social results. The Angren-pap railway tunnel helps eliminate traffic problems for 10 million Uzbeks living in the Fergana Valley. The Pengsheng industrial park was jointly invested by China and Uzbekistan, and is the first of its kind with investment by Chinese private enterprises. The park has accommodated more than 10 companies, contributing over 1,300 local jobs and 20% of the local tax revenue.

Coordination between Kyrgyzstan’s sustainable development strategy and the BRI. Kyrgyzstan’s coordination with the BRI is conducted via the National Sustainable Development Strategy 2013-2017, promulgated in 2012. In this framework, the economic and trade cooperation between China and Kyrgyzstan has been booming. First, bilateral trade and investment continue to expand. China is the largest trading partner and investor in Kyrgyzstan. In 2018, the bilateral trade value hit US$5.61 billion,14 which is more than 150 times compared with US$35.48 million in 1992, when China and Kyrgyzstan established diplomatic relations. China’s investment in Kyrgyzstan has totaled US$3.86 billion. Second, transport infrastructure achieved much in its early stages. The Issyk-kul ring road from Bishkek to Balykchy, the North-south highway and the Chinakyrgyzstan-uzbekistan international highway have been opened to traffic, which significantly reduces transportation costs and boosts the entire regional economy. In December 2017, Kyrgyzstan released its National Sustainable Development Strategy for 2018-2040. 89 projects were planned for the first period from 2018 to 2023, the key area being transport infrastructure. This strategy shares the priority as the BRI, and brings new momentum to coordination between the two sides.

Coordination between Tajikistan’s national development strategy and the BRI. The coordination between Tajikistan’s National Development Strategy until 2030 and the BRI has also made some progress. A number of

projects have been built, including the Ayni-panjakent highway, the Vahdatyovon railway and tunnels along its route, the China-tajikistan road, the Tajikistan-uzbekistan road, the Khatlon tunnel and the North-south 500KV transmission line, which not only significantly improves the poor infrastructure of Tajikistan, but also advances the infrastructure connectivity between China and Central Asia. China is now Tajikistan’s second largest trading partner and its biggest investor, with bilateral trade amounting to US$1.5 billion in 2018, up 3.5% compared with 2017.15 By June 2018, China had invested almost US$2 billion in Tajikistan in various fields, adding up to about 30% of Tajikistan’s total foreign investment. There are more than 400 Chinese companies that have been registered in Tajikistan. These companies have created plenty of tax revenues and jobs, and play a positive role in promoting economic and trade cooperation between the two countries.

Joint construction of the China-pakistan Economic Corridor (CPEC). As the flagship project of the BRI, the CPEC connects China’s Xinjiang with Gwadar Port of Pakistan. Beginning construction in 2013, the CPEC has achieved remarkable results in all the four key cooperation fields of transport infrastructure, Gwadar Port, industry, and energy. In the field of energy and electric power, among 15 signed projects, 6 have been completed, generating 3,140 megawatt of electric power for Pakistan and greatly alleviating its power shortage.16 In the field of infrastructure, the middle section (Sukkur to Multan) of the Peshawar-karachi Motorway project, the biggest transport infrastructure project under the CPEC, has been open to traffic. The Karakoram Highway Phase 2 project has made progress, with its main part near completion. The first and second segments of the E35 Expressway have been open to traffic, forming the CPEC’S northern mainline together with the Karakoram Highway. The East Bay Expressway of Gwadar Port, which will connect Gwadar with Pakistan’s road network, is under full-scale

construction, and is expected to be completed in 2020. The infrastructure of Gwadar Port has been improving, and a multifunctional wharf with three berths of 20,000 tons has been built, which significantly expands the port’s capacity and freight arrival frequency. In 2018, the Gwadar Free Trade Zone was opened and the first Gwadar Expo was held, marking the emerging role of Gwadar as a shipping and commercial hub. The CPEC contributes 1~2% of Pakistan’s GDP growth and creates 70,000 jobs for the country, which greatly benefits the local people.17

Contributing to SCO regional economic cooperation

The coordination of SCO member states’ national development strategies with the BRI not only improves their own economic development, but also revitalizes regional economic cooperation. In 2018, China’s trade volume with other SCO member states amounted to US$211.6 billion. The structure of traded goods between China and other SCO countries are gradually optimized, with the ratio of electronic and mechanical equipment on the rise. China has also had fruitful results in investment and contracted projects in the SCO region. By the end of 2018, China had invested about US$85.2 billion in other SCO member states, and the turnover of contracted projects in these countries reached US$226.3 billion. A large number of projects between China and other SCO members, including roads, power plants and pipelines, have been built into model projects in the region. These projects help with the early formation of a complex infrastructure network within the SCO region, covering roads, railways, oil and gas, and telecommunication, which further strengthens the bond of interests among SCO countries.

Challenges for SCO-BRI Coordinated Development

Although the SCO and the BRI jointly contribute to mutual improvement

and coordinated development, they face a series of obstacles in the process of implementation.

Lack of SCO financing mechanisms

Financial cooperation plays an important role as catalyst and guardian of the SCO’S regional economic integration. Through in-depth financial cooperation, SCO member states can facilitate construction of major infrastructure, industrial development and economic structural transformation. The SCO has established a mechanism for regular consultation on the level of financial ministers and central bank governors, and has set up the SCO Interbank Consortium as the main platform for organizing financial cooperation. However, with its development over many years, the SCO Interbank Consortium remains a loosely organized institution rather than a fixed entity, unable to fulfill the key role of financing projects. Some member states have proposed establishing financing mechanisms such as the SCO Development Bank and the SCO Development Fund (Special Account), but these remain on the drawing table for a variety of reasons. The lack of financing mechanisms and channels not only fails to meet the rising demand of member states, but also restrains the coordinated development of the SCO and the BRI, including further advancing the coordination between the BRI and the EEU.

Lag in trade facilitation

In recent years, SCO countries still experience a variety of barriers with regard to customs procedure, common standards, business environment, market access, etc. For instance, in terms of common standards, Russia and Central Asian countries basically adhere to Soviet standards, which are obviously incompatible with those of China. As for business environment, with consistent reform, most member states have made progress, but for some key indicators such as tax payment, credit access and trans-border trade, these countries still lag behind the world’s average level. In reality, most member states also face severe problems, such as inadequacy of public

services, inefficiency of government agencies, power rent-seeking and corruption, which greatly hinders investment cooperation. Besides, with different development levels and interest demands among member states, the plan for a SCO free trade zone has become intractable. These factors have slowed the coordination of SCO countries’ development strategies with the BRI, causing negative effects on coordinated development of the SCO and the BRI.

Absence of SCO common position on jointly building the BRI

So far, the coordinated development of the SCO and the BRI merely exists on a bilateral basis between individual member states and China. Although most SCO member states have shown support for the BRI, there are a few countries that still harbor doubts. For example, India has expressed reluctance toward the BRI and has been unwilling to support or to participate in it, which may negatively impact SCO-BRI coordinated development.

Russia is one of the SCO’S leading countries and an important party along the Belt and Road. The SCO is defined as an important platform for the coordination between BRI and the EEU, and Russia responds positively to it. Without a doubt, however, Russia puts greater emphasis on the EEU. Moreover, the Russia-led EEU coordinates with the BRI more on the bilateral level. Due to protection of its internal market, the EEU is reluctant to build a free trade zone with China, which serves as the main obstacle to deepening coordination between the EEU and the BRI.

Paths for SCO-BRI Coordinated Development

Both the SCO and the BRI are at a new historic juncture of development. The 2018 Qingdao summit pointed the way toward healthy development of the SCO in the next stage. With its five years’ of development, the BRI has also reached a turning point. The SCO and the BRI should give full play to their advantages, further optimize their functions and goals, and pursue

mutual improvement and joint development in the new period.

Strengthening political mutual trust

With India and Pakistan joining the SCO, the disputes between the two, as well as between China and India, will influence the organization’s cohesion, making it more difficult to coordinate the interests of its member countries. On June 10, 2018, during the Qingdao summit, Chinese President Xi Jinping appealed to all member states, saying that “We should respect each other’s choice of development paths and accommodate each other’s core interests and major concerns. We should enhance mutual understanding by putting ourselves in others’ positions and boost harmony and unity by seeking common ground and setting aside differences. This will enhance the cohesion and appeal of our organization.”18 The SCO should steadfastly promote the “Shanghai Spirit,” enhance the role of the Council of Heads of State , reinforce and expand dialogues, increase coordination and communications at various levels among member states, improve the existing internal mechanisms and legal framework, and integrate the new members into the SCO family as soon as possible. The strengthening of political mutual trust among SCO member states will favor the organization’s policy coordination with the BRI.

Innovating security cooperation

The BRI cannot make consistent steps forward without stability in the region. Currently, the SCO region is facing a combination of security threats and political-social crisis, which poses great security risks to Belt and Road construction. For the future, the SCO security cooperation could further innovate and be improved in several aspects. First, implementing the two documents approved during the Qingdao summit, the Program of Cooperation in Countering Terrorism, Separatism and Extremism for 2019-2021, and the SCO Antidrug Strategy until 2023, and bringing the

SCO Anti-extremism Convention into effect as early as possible. Second, relying on the SCO Regional Anti-terrorist Structure and deepening the communication and cooperation among member states in areas such as combating religious extremists and trans-border crimes, preventing regional conflicts, protecting the environment, and regulating illegal migrants. Third, establishing effective mechanisms to safeguard cooperation projects and achieve positive interaction between security and development.

Pushing forward regional trade and investment facilitation

As Central Asian integration moves forward, the SCO trade facilitation working group should take the opportunity to speed up negotiation of the SCO trade facilitation agreement. On the basis of the WTO Trade Facilitation Agreement, the SCO should develop more facilitation measures in terms of customs clearance, inspection and quarantine, logistics and transportation, standard certification, payment and settlement, etc. With Central Asian countries in need of financial support for development, the SCO could work step by step to remove investment barriers and improve the business environment. Such measures will boost the economic development of the entire region, and deepen the integration of the BRI into inter-state cooperation within the region.

Expanding Belt and Road financial cooperation

First, countries should work to advance the use of the renminbi in the region. Through measures of expanding trans-border currency services, which include mutual home currency account clearance, direct exchange rate mechanism between the renminbi and other member states’ currencies, and interconnectivity of bank cards, it is possible for the renminbi to circulate on a broader scale. Second, the financing channels for enterprises should be broadened. Besides the Silk Road Fund, the Asian Infrastructure Investment Bank (AIIB) and the China-eurasia Cooperation Fund, consideration should be given to setting up development funds for specific fields, such as energy and mineral development and agricultural cooperation, bringing multi-level