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China’s Xinjiang to get free trade zone under Belt and Road Initiative

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Making Xinjiang a free trade zone is expected to support China's goals of seeing more nations settle payments in Chinese yuan instead of US dollars, especially when buying commodities

China has announced plans to create a free trade zone in the Xinjiang region of its northwest part. These plans are based on President Xi Jinping’s ambitious ‘Belt and Road Initiative’, which aims to build economic corridors from China to Europe.

The Chinese government’s ambitions to increase infrastructure connections and cross-border trade throughout northern China, especially in Inner Mongolia and the provinces of Heilongjiang, Jilin, and Liaoning, are in line with the opening of Xinjiang as a free trade zone.

The strategy suggests granting Xinjiang officials more latitude to implement measures aimed at luring foreign investors from neighbouring nations, all but Afghanistan being part of China’s grandiose endeavour to resurrect the historic Silk Road.

The plan said that the establishment of the ‘Xinjiang Pilot Free Trade Zone’ would be the responsibility of local government officials in the area as well as the ‘Xinjiang Production and Construction Corps’.

The European Union, Canada, and the United States all imposed sanctions on the ‘Xinjiang Production and Construction Corps’ in 2020 for allegedly violating human rights.

The Uyghur Forced Labour Prevention Act was also passed by the United States in December 2021. It forbids the importation of goods made in Xinjiang or by businesses that are on the Uyghur Forced Labour Prevention Act Entity List into the United States unless the importer can demonstrate that the goods were not made using forced labour.

At a May 2023 shareholder meeting, Volkswagen’s investors urged that the automaker ask its joint venture partner for assistance in conducting an independent examination of working conditions at a location in Xinjiang.

“It is necessary to firmly establish the overall national security concept…and effectively strengthen the construction of risk prevention and control systems,” the cabinet’s proposal read.

Making Xinjiang a free trade zone is expected to support China’s goals of seeing more nations settle payments in Chinese yuan instead of US dollars, especially when buying commodities.

Challenges Galore For The Project

As the Belt and Road Initiative entered its second decade, a report from the researchers of AidData, the World Bank, the Harvard Kennedy School and Kiel Institute for the World Economy has now identified a major rise in emergency loans to stakeholder countries, as these nations reportedly face difficulty repaying debt taken on as part of Belt and Road projects.

“Analysis of a new dataset demonstrates that, by the end of 2021, China had undertaken 128 rescue loan operations across 22 debtor countries worth USD 240 billion. These operations include many so-called ‘rollovers,’ in which the same short-term loans are extended again and again to refinance maturing debts,” the study noted further.

“Less than 5% of Beijing’s overseas lending portfolio supported borrower countries in distress in 2010, but that figure soared to 60% by 2022. China has responded to the rising tide of debt distress by pivoting away from infrastructure project lending and ramping up liquidity support operations. Nearly 80% of its emergency rescue lending was issued between 2016 and 2021,” the study continued.

Also, the Philippines has now announced the termination of big-ticket infrastructure projects with China in favour of Japanese and Western rivals, as the relationship between the countries has taken a dramatic downturn.

“For the Philippines, China has largely engaged in ‘pledge trap’ diplomacy during the Duterte administration, a cynical ploy that entailed forward-deployed concessions in the South China Sea in exchange for largely illusory investment pledges. China pledged as much as USD 24 billion in infrastructure projects under Rodrigo Duterte, nearly none of which have been delivered,” commented a report from Asia Times.

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