Tapping the new frontier

The vast western region of Xinjiang has never featured prominently on the radar screens of foreign investors rushing to pour capital into China's booming east coast cities. Accounting for one sixth of China's land mass but with less than 1% of its population, this officially autonomous desert region, occasionally shaken by a low-level insurgency, has often been seen as a troubled backwater.

But skip back a couple of millennia – when Xinjiang was China's primary business gateway. Then, its oasis towns such as Kashgar and Yarkand were vital hubs for the camel caravans traveling the Silk Road, placing the region at the cultural and commercial crossroads of the known world.

Now back to the present: Changing dynamics of Central Asia, combined with the demands of China's own fast growing economy, are reviving this ancient trade route, but in a very different form. In place of the camels, silk and spices, come railways, six-lane highways, and, most important, oil development. "Over the next decade the central government plans to invest US$50bn in Xinjiang," says Wu Xiaobin, deputy director general of the Xinjiang Foreign Trade and Economy Department, based in the regional capital, Urumqi.

Most of that investment will be spent improving the region's infrastructure, he says, and getting its mineral and oil wealth out of the region to where it is needed most – China's energy-hungry east.

Listing off the region's natural resources, Wu points out that Xinjiang accounts for more than a third of China's petroleum and natural gas reserves, 40% of its coal reserves as well as the country's largest deposits of gold, copper and other important metals. Indeed, he calls Xinjiang "China's energy storehouse."

As oil begins its trek east, government incentives draw thousands of migrants in the other direction, bringing new money and new business to China's western borders. The incentives are bundled into a program that does not lack for controversy: many of the native Uyghur population worry about being outnumbered by incoming Han Chinese, and ending up as a minority on their home turf.

The name Xinjiang itself translates as "new frontier" and for many of these new east coast migrants, the region holds the same allure as the Wild West did in the early days of the United States. In this case, the new frontier constitutes the post-Soviet states of Central Asia, placing China's westernmost reaches at the commercial frontline of a region rich with natural resources.

"Xinjiang's location makes it China's most important link with Central Asia," Wu argues. "We share a border with eight different countries and last year we conducted US$4.7bn of foreign trade, more than half of which was with Central Asian countries." Perhaps the biggest draw in this emerging business scene is Kazakhstan, one of the world's few oil producing countries thought to harbor substantial – and crucially – as yet undiscovered reserves. It's a prospect that has a thirsty China licking its lips: Kazakhstan's Kashagan field, for example, is the fifth largest oilfield in the world, with the potential to pump around one million barrels a day. Some surveys suggest Kashagan may be but a taste of things to come.

Over the past decade Kazakhstan has tripled its daily oil production and plans to triple its output again by 2015 on the back of increased foreign investment and technology. China has its eyes on securing the lion's share of that output, with construction work under way on a network of pipelines bringing oil from as far away as the Caspian, via Xinjiang, to China's east coast.

And as Kazakhstan sells its oil overseas, the wealth flooding back is increasing its demand for cheap consumer goods – something China, of course, produces by the bucket load. One foreign company already seeing the benefits is international freight forwarder Militzer & Muench Tianbao, the Chinese joint venture subsidiary of Germany-based M&M.

Julian Zhong, M&M's resident manager, says she has seen business double annually for every one of the eight years the company has been operating in the region. Based in Urumqi, M&M prides itself on "spotting new markets and getting in place ahead of the game" as she puts it. (The company is, for example, one of the few overseas investors to have an established business presence in North Korea.)

Zhong says Xinjiang's capital is fast emerging as the main commercial center for trade and transport across the region. "Much of our trade has come from Urumqi acting as the consolidation point for the technology, materials and equipment used in the Central Asian oil business," she says. "As that develops, we are also seeing other forms of trade emerge, especially to countries like Kazakhstan. And, as that grows too, we are also beginning to see the emergence of the so-called "second neo-Eurasian land bridge." The first land bridge, of course, was the Trans-Siberian railway. The second realizes China's long-cherished plan to link up with Western Europe via Central Asia. With oil providing the investment impetus, that dream looks like finally becoming a viable commercial reality.

"Recently we started a service shipping hops grown here in Xinjiang, by rail to a brewery in Germany," Zhong says. "It's a through service and takes just nine days to reach Berlin – much faster than sending it to the coast to be shipped by sea." In time, all going to plan, transport time should get shorter still.

In March, Kazakhstan announced it was seeking international funds for the upgrading of more than 3,500km of rail track, converting its own key section in the transcontinental land bridge from Soviet-era broad gauge to international standard gauge.

"This will be a big opportunity for Xinjiang," Zhong says, "Especially for Urumqi, which has the potential to be the main business center in the heart of Asia."