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China's ancient capital is a growing hub for trade

  • Xi'an, the starting point of the ancient Silk Road, is home to a nearly seven-year-old railway container center that facilitates transport of oilseeds grown in Kazakhstan to be processed by Chinese company Aiju, before being sold back to Kazakhstan
  • The Kazakh government announced on July 11 an agreement to cooperate on trade in grain and oilseeds with Aiju
  • Flour exports from Kazakhstan to China increased eight times from 2014 to 2016, the USDA said in April
Two workers at Xi’an Aiju Grain and Oil Industry Group monitor a robot as it handles jugs of rapeseed oil.
Evelyn Cheng | CNBC
Two workers at Xi’an Aiju Grain and Oil Industry Group monitor a robot as it handles jugs of rapeseed oil.

China is growing its ties with Kazakhstan as the "Belt and Road" program gets underway.

A prime example is the nearly seven-year-old railway container center in China's ancient capital city of Xi'an that links the world's second-largest economy to the Central Asia country.

Kazakhstan is the so-called inland port's biggest market, followed by Amsterdam, said Jie Gai, project manager in marketing for Xi'an International Inland Port Multimodal Transportation.

The Xi'an Railway Container Freight Station in the Xi’an International Trade and Logistics Park opened in 2010 and covers 68.3 hectares.
Evelyn Cheng | CNBC
The Xi'an Railway Container Freight Station in the Xi’an International Trade and Logistics Park opened in 2010 and covers 68.3 hectares.

Xi'an is also home to the terracotta warriors and the starting point of the historic Silk Road over which merchants once traveled to bring goods between China and Europe. Now China, under President Xi Jinping, is trying to reopen that channel of commerce through the Belt and Road initiative (also known as "One Belt, One Road"). A string of projects, typically led by corporations using funding from China and other countries, seeks to build up infrastructure in the surrounding regions.

China also hopes to benefit economically from improved growth in the region. In November 2014, Kazakh President Nursultan Nazarbayev announced a domestic stimulus program called "Nurly Zhol" (Bright Path) which called for $9 billion in state and foreign direct investment into infrastructure and industries such as agribusiness and information technology, in an effort to move the economy away from the oil industry.

"Their demand for tires, more building materials, cement, steel … day by day, increases a lot," Gai said, speaking with a group of U.S. journalists during a September visit to Xi'an.

The Central Asian country also sends food to China. Oilseeds grown in Kazakhstan are exposed to far less pollution than they would be in China, Gai said. The railway transfers the seeds to Xi'an, where they are turned into oil. The finished product, a regional cooking oil called rapeseed oil, is then sent back over the railroad to Kazakhstan.

That process cuts costs by about 20 percent for local oil producer Aiju, Liu Dongming, vice president and deputy party secretary, told the U.S. journalists. The company also has a processing plant in Kazakhstan.

Liu Dongmeng is vice president and deputy party secretary of Xi'an Aiju Grain and Oil Industry Group.
Evelyn Cheng | CNBC
Liu Dongmeng is vice president and deputy party secretary of Xi'an Aiju Grain and Oil Industry Group.

Going by rail over land is also cheaper than air transport and faster than traveling by ships through water.

"Kazakhstan, through One Belt, One Road, is playing a key role in products coming from Western China, all the way to the Riga port and other places," said David Merkel, senior fellow at U.S.-based think tank Atlantic Council. "They've been working on it for a while and they're starting to see real results from it being opened, and the One Belt, One Road is a reason for that."

The Kazakh government announced on July 11 an agreement to cooperate on trade in grain and oilseeds with Aiju. Part of the agreement allows for Kazakhstan to supply 100,000 tons of oilseeds to China and create a storage facility for the crops along the national border, the announcement said.

Already, exports of agricultural goods from Kazakhstan to China rose 7.7 percent in the first four months of the year to $61.6 million, while imports of Chinese goods rose 23.7 percent to $51.6 million, the report said. "Turnover of agricultural products and products of agricultural processing" between the two countries rose 14.5 percent to $113.2 million.

Xi’an Aiju Grain and Oil Industry Group has 40 oil tanks similar to the ones pictured above with a total capacity of 90,000 tons, according to the company.
Evelyn Cheng | CNBC
Xi’an Aiju Grain and Oil Industry Group has 40 oil tanks similar to the ones pictured above with a total capacity of 90,000 tons, according to the company.

"One Belt, One Road gives entrepreneurs a lot of opportunity," said Aiju's Liu, citing cheaper costs and lower transaction fees. "We also hope there will be opportunity to cooperate with U.S. companies [as a] food and oil dealer."

The U.S. Department of Agriculture's Foreign Agricultural Service is also monitoring Kazakhstan's grain trade with China.

In April, the USDA said in a report that flour exports from Kazakhstan to China increased eight times from 2014 to 2016, while the pace of exports to other countries in the region steadied or declined over that time.

While no specific data on oilseeds trade was available, the report said the Kazakh government was also subsidizing oilseed crops at 100 percent per metric ton if they are sold to oil crushing facilities for further domestic processing.

Kazakh oilseeds stocks, as of April 1 (Thousand metric tons)

Source: Kazakhstan Statistical Agency

"The skeptical side of One Belt, One Road [says it will] get these countries into debt to [China] with these projects. I don't think that's a problem with Kazakhstan because Kazakhstan can show up with their own game. They're able to negotiate very good deals with China, Russia, Europe," said Merkel.

China's agriculture trade with Kazakhstan looks set to grow.

In October, the USDA pointed to news that Chinese investors are interested in setting up noodle production facilities in Kazakhstan worth about $47 million that will send about 700 tons of noodles a day to China.

"Chinese consumers are reportedly asking for noodles made of Kazakh flour," the USDA reported.

The Xi'an railway container center is part of the Xi'an International Trade and Logistics Park, the only inland logistics center for imported grain and meat, according to Chinese state-run magazine Beijing Review.

"At the beginning, there were one to two trains a week. Now, there are three to five trains a week" at the rail hub overall, Gai said. Our "goal is to have two trains a day."

Disclosure: Travel to Asia was supported by the East-West Center, the Better Hong Kong Foundation and the All-China Journalists Association.