László Vértesy

Financial and legal opportunities on the new Silk Road






The Great Silk Road is the popular name given to the system of caravan trade routes that lasted for many centuries and linked Eastern and Western civilization between the Ancient and Middle Ages. The Silk Road was not static; the routes changed over time.

The Road first operated in 2 B.C. as a route between China and the capital of the Roman Empire. It was approximately 7000 kilometres long. The most valuable commodity imported from China was silk, thus … The Silk Road. Around 6 A.D. and 7 A.D. the route linked China to the West via southern Kazakhstan. The flourishing period of the Silk Road through Central Asia and Kazakhstan declined during the 8th to 12th centuries. Silk, satin, wool, porcelain, musk, jade, tea, wine, paper, gold, silver, rubies, diamonds, pearls, horses, lions, peacocks, elephants, camels, colored glass, dates, saffron powder, pistachio nuts, alfalfa, grapes, flax, pomegranates, walnuts and cucumbers were just some of the commodities transported.

Traveling the standard route of the Silk Road took about 200 days, with an average of 50 kilometres covered per day.

The ancient Silk Road helped integrate the old Chinese, Indian, Persian, Arabian, and ancient Greek and Roman cultures and promoted an exchange between the Western and Oriental civilizations. The Silk Road is an ancient transportation channel that began in China and traversed Central Asia, West Asia, Africa and Europe. This strategic route was instrumental not only in linking the ancient world but also in fostering key economic and cultural partnerships between the East and West, especially the Chinese, Indian, Persian, Arabian, Greek and Roman cultures.




The monitoring of the present situation of the capital and money relations even in Europe and Asia will help the project to estimate the financial development, and to understand the supply and demand factors. The key indicators (in point No. 4) are important in European transport research and innovation.

China is laying the groundwork for a new Silk Road to Europe, holding out the promise of lucrative investments to a continent limping to economic recovery -- despite the ideological gulf with the West. Nowadays in Rome, the Chinese Prime Minister Wen Jiabao sealed agreements worth € 2.25 billion including solar power and broadband Internet projects. China pledged to more than double trade to $ 100 billion by 2015 during his Greece visitation.

But here is a different view of this investment: Radio Netherlands Worldwide discussed the prospect of Greece becoming "China's first colony in Europe", while the Asia Times spoke of a "dragon-tailed Trojan Horse".


1.1.         ADB


The Asian Development Bank (ADB) is extending $ 700 million to Kazakhstan to help improve a major road that will transform the country's economy. The new " Central Asian Regional Economic Cooperation (CAREC) Transport Corridor I " will run 2,715 kilometres, from the city of Khorgos on Kazakhstan’s border with the People’s Republic of China (PRC), through Almaty and Shymkent, and to the western border with the Russian Federation. This new Silk Road will boost trade between Beijing and Brussels, and create extraordinary economic opportunities for the people of Kazakhstan and their neighbours. The northern branch of the ancient Silk Road ran through today’s Kazakhstan, placing the region at the heart of trade between the PRC and Europe – and bringing the region immense prosperity.

In Kazakhstan, roads play an important role in providing access to rural areas, and facilitating transit traffic and in-country transport movement. However, the Kazakh road sector has experienced long-standing operational and institutional constraints that raise the cost of doing business. The road network is incomplete, many sections of road need repair, travel times are long, and cumbersome cross-border procedures increase the burden on trade and traders.

ADB will partner with the Islamic Development Bank (IDB) and the Japan International Cooperation Agency (JICA) to handle a 480 kilometre section of the road network in the southern part of Kazakhstan. The overall investment for the road project is approximately $ 6.7 billion, of which the ADB section and that of its partners amounts to about $ 1.48 billion. ADB will provide a $ 700 million multitranche financing facility, while IDB will provide $ 414 million and JICA $ 150 million. Other financiers behind the overall corridor development plan include the Government of Kazakhstan, the private sector, the World Bank, and European Bank for Reconstruction and Development.


1.2.         European Union


In 2009 March, European Union leaders approved a plan to allocate € 3.75 billion euros to energy projects aimed at increasing Europe's security of supply. The March agreement ended weeks of squabbling between EU member states over which projects should receive funding, to be made available as part of a wider EU recovery plan to kick-start the economy. Germany was initially opposed to any mention of the Nabucco gas pipeline project, but finally gave in to pressure from Central and Eastern European countries, which consider it crucial to their energy security. In return for their commitment to supply gas to Europe, the EU offered to provide more trade and stronger transport links to gas producers and transit countries such as Turkey and Azerbaijan, which form a so-called 'southern corridor'. 

On the other hand there are some thoughts: the EU should concentrate its efforts on a single project, such as the construction of the proposed 3,300 km (2,000 mile) Nabucco pipeline, if its gas plan was to gain momentum. The $ 10 billion Nabucco project envisages pumping Caspian gas via Turkey, Bulgaria, Romania and Hungary to Austria, but it has only secured a fifth of the gas it needs to be viable. Its main source of gas from Azerbaijan may be delayed until 2016. Leaders at the summit also agreed that EU countries and Turkey would sign an intergovernmental deal on conditions for putting gas through Nabucco by the end of June -- a move that would remove one of the main uncertainties for potential investors. The EU talked about diversifying its gas supplies for decades, to no avail, but has strengthened its resolve since a row between Russia and transit country Ukraine in 2009 January left European homes unheated. 

Under the European Commission (EC) aid programmes to Asia and in Latin America (ALA), over the last 20 years around 2000 projects were funded in 33 countries. In 1995, EC aid commitments to ALA states represented around 1.2 billion EUR, which is a substantial share of total EC aid for development cooperation. ALA-Aid was largely focussed on the poor sectors of the population, and therefore consisted to a substantial extent in food and humanitarian aid, assistance to and through NGOs and to the social sectors. The evaluation covers commitments worth € 3,871 million to Asia.

Technological advances over the years have compelled researchers worldwide to take key components from the past and transform them so as to meet a more advanced future. The Silk Road has not been ignored. Researchers in the Central Asia region, including Kyrgyzstan, Tajikistan and Turkmenistan, have received € 5 million from the EU's Europe Aid Cooperation Office to ensure better and faster internet capacity. A significant investment to the Central Asia Research and Education Network (CAREN) has effectively upgraded the Silk Road to a 21st century high-speed internet highway for research and education. The European Commission has brought internet researchers in Central Asia into the international research community through a € 5 million (6.74 million) grant to the CAREN. Co-funded by the European Commission’s Europe Aid Cooperation Office, CAREN receives 80% (€5 million) of its € 6.25 million budget from the European Commission, with the remaining fund being provided by the beneficiary countries on a cost-sharing basis. Early beneficiaries of CAREN will include: scientists monitoring seismic data with improved hazard assessment and disaster risk management in this earthquake-prone zone; telemedicine initiatives in Tajikistan; planned textile research collaborations between the London College of Fashion and partner colleges in Tashkent; and environmental monitoring of the Issyk-Kul basin between the Kyrgyz Institute of Physics and partner institutes in Germany and the United States of America.

Although the European Bank for Reconstruction and Development (EBRD) has its own role. The EBRD’s new three-year strategy for Kazakhstan, approved in February, will focus on these areas. The bank has also signed an agreement with Kazakhstan’s state holding and investment company Samruk-Kazyna and the Industry and Trade Ministry to invest up to $ 1 billion in projects to diversify the Kazakh economy.   The EBRD will lend $ 50 million to Bank Centre Credit (BCC), which is Kazakhstan’s fifth largest bank by assets, with eight percent of the banking system’s total assets and 14.4 % of retail deposits.


1.3.         Common cooperations


The priorities of the Association of Southeast Asian Nations (ASEAN):

·       regional stability and supporting the fight against terrorism;

·       human rights, democracy and good governance promotion;

·       highlighting the legal and home affairs;

·       stream regional trade and investment relations;

·       supporting the development of less prosperous countries;

·       in some areas of political dialogue and cooperation.


The EU attaches great importance to the South Asian Association for Regional Cooperation (SAARC) in the framework of strengthening cooperation between countries of the region mainly in the field of foreign trade. In addition, the Association can help in the normalization of Indo-Pakistani relations. The association was established relations with the EU on trade issues be given priority.

The informal meetings (e.g. Asia-Europe Meeting ASEM), held regularly since 1996, aims to political, economic and cultural issues to discuss and develop their cooperation. Although this is not an institution for development co-operation body, the Commission provides financial support for various initiatives.

The international program for the development of Transport Corridor Europe-Caucasus-Asia (TRACECA) is not limited to transport functions – it has established itself as an important factor in future economic and social development of Eurasian countries.

The study will give practical solutions to develop their roles.




Due to economists, by 2020 the Silk Road is expected to increase Kazakhstan’s gross domestic product (GDP) by 68 % above the 2010 baseline, and to increase the GDP of neighbouring Central Asian countries by 43 %.

The investments will vitalize role of the commercial banks either.

China, Russia, and the European Union (EU) will also reap significant gains from the road project. By 2020, the PRC’s GDP is expected to grow 6 % over 2010 baseline levels, while the GDP of Russia and the EU are expected to grow an additional 4 percent.

These constraints have led to higher-than-average transport costs, hampered regional cooperation and integration opportunities, and impeded Kazakhstan’s competitiveness. ADB financing will contribute to the removal of these constraints. The improved road will increase travel speed 40 % by 2015, while reducing freight transport costs by half. It will also shorten travel distances, improve road safety standards and lead to a decline in accident rates.

The number of containers through Piraeus would rise in 2011 to 800,000 and reach 3.7 million by 2015. The merchant marine is an important sector of cooperation between the two countries because 60 % of crude oil is imported in China on Greek boats and 50 % of Chinese merchandise is transported on Greek boats. Greece has the largest merchant fleet in the world.

As a result of the research:

·       the sustainable economic and social development in partner countries facilitate the smooth and gradual integration into the global economy;

·       strengthening the institutional and legal frameworks, particularly with regard to democratic principles, rule of law, the protection of human rights and freedoms;

·       promote economic and trade cooperation, investment promotion, the countries of the region enabled the multilateral trading system and the implementation of WTO agreements;

·       fight off the organized crime, money laundering, terrorism, drug trafficking, illegal migration, combating trafficking in human and support conflict prevention;

·       encourage regional cooperation and integration in Asia, and deepening the relations with the EU;

·       help in reconstructions after vis maior-s, Acts of God.

·       start exchange programmes in different culture group and to promote cooperation between West and East.

·       provide opportunities for the experts to exchange experiences and the spread of new products.

·       publish new findings of cooperative research in international journals.

·       to set up a network/platform for all experts all over the world, who are interested in commerce, transport, energy, education, culture, society, food etc.

·       support China/Asia coutries to connect with West and improve their system





The research focuses on several sectors which are connected to transport, movement of capital, money.


3.1.         TOURISM


The role of tourism cannot be neglected. Attractive countries (both asian and European states) vitalize the traffic and travel of peoples and goods. Tourists pay money for the services and good which impress the state budget and commercial sphere also. The problem is the contraband. The identification systems should be supervised.

On other hand the central Asian countries need to be democratic, and politically stable state where they can enjoy good services, including all the comforts of modern hotels, and unforgettable sightseeing activities.




The European Union protect its single and internal market mainly with the common policy of the custom and tax system. The cheap Asian goods endanger the European enterprises mostly the sector of agriculture and light industry.

The importance of copyright and fair comeptetion. The copyright grants undeniably a monopoly right. Traditionally, competition law has co-existed with intellectual property law : the boundaries of the relationship have been well established. But this co-existence is now being questioned by some. Copyright products are increasingly easy to access, especially via the forms distributed and created by new technologies. Copyright protection will be ever increasingly required too, as long as consumers are keen to enjoy quality content.

The competition law is an effective tool inter alia to combat the abuse of a dominant position. In my view, its role should not be to question the specific subject matter of what may be subject to copyright protection.




It is important to establish a transparent financial system by creating common regulations for all the partner countries concerned Silkroad.

One of these steps is to introduce unitary invoice methods, because invoices are the basic documents of money transfer. This eventuates common accounting. With these regulations the allocation of capital can become more transparent. The introduction can be imagined only on legislative base, meeting the international standards, USAID has helped to establish this. The accounting system of enterprises was converted to internationally accepted accounting standards, that will make a significant contribution to the simplification of financial accounting of enterprises and their transparency, the latter being one of the key requirements of Western standards for corporate governance.

The anonym bonds, securities, accounts are dangerous also because authorities cannot follow the financial movements. These monies can support terrorism, drug-trade, black economy. By money laundering large scale of incomes leaves the productive economy.

The corporate governance should be transparent either. Several conferences were taken on this theme (e.g. Meeting of the Eurasian Corporate Governance Roundtable 2001.) the importance of improving corporate governance, as a crucial factor in the successful operation of companies and development of the country overall. The introduction of international principles of corporate governance must become one of the main priorities.

These subjects have strong relations to risk management e.g. capital allocation and stock markets (see point No. 5).




Each researches worth nothing without significant numbers. By comparing the indicators we can control our hypothesis and the measure the development and the benefits (or losses) of the dispatches introduced.

In this case the following indicators can be important:

·       the amount of the goods and services,

·       the changes of trade balance (based on countries, regions, EU vs Asia),

·       the quantity and number of

-     insurances, collaterals,

-     insurance amounts,

-     credits, loans, leasings,

-     demands factorised,

-     investments into industry, energy, contrustions,

·       the changes of stock exchange indexes, and consistency of portfolios,

·       the increase of the GDP-s, GNP-s, NDP-s etc.

·       the decrease of the transportation time.




Risk is the essence and driving force of economy. There is no profit without taking risk.


5.1.         insurance


The classic way for risk management or risk financing is insurance. In this case: cargo insurance, vehicle insurance, goods and services insurance etc.

An important sphere of this the central Asian countries’ (e.g. Kazakhstan) financial authorities increased retail deposit insurance. The global financial situation is likely to keep the international financial markets off limits to banks which still face debt repayments abroad and struggle with increasingly deteriorating credit portfolios on their books. Therefore, it is imperative that the banks do not lose the trust of their depositors, clients.

For example BTA Bank plans to reorganize its insurance business by merging three of its insurance subsidiaries, the Kazakhstan Stock Exchange (KASE) reported, citing an official letter from BTA. BTA Group also includes London-Almaty, another insurance provider, and BTA Life, a life insurance company.


5.2.         capital allocation


Asia needs capital and Europe needs new places for investments. It is important that Europe should be the first in the economic competition for the Asian investment market. Recent news with more than a dozen Asian investors, who collectively control more than $ 300 billion in assets, revealed that they are set to shift their portfolio asset allocation toward Asia by 10-30 %. We believe that up to $ 250 billion will be available for investment in Asia over the next five years. While the west would remain Asia's dominant source of investment, this would represent an important shift in the pattern of global capital flows. It also means boosting the transparency of financial reporting, creating more effective markets for corporate control (so investors can readily use stock markets to pressure managers to perform) and improving corporate governance. Such measures would enhance the economic attractiveness of both regions and the efficiency of capital allocation.


5.3.         stock markets


With competition from international stock exchanges still strong, the Asian Stock Exchanges look for a strategic partner and plans to lobby the government to put pressure on domestic companies to issue on the local exchange.

As the recession recedes and Kazakhstan’s major companies turn their minds to fundraising, the Kazakhstan Stock Exchange (KASE) is hoping for an increase in activity towards the end of this year. But with competition from international stock exchanges still strong, the KASE is looking for a strategic partner and plans to lobby the government to put pressure on domestic companies to issue on the local exchange. Recent deals on the KASE include sovereign wealth fund Samruk-Kazyna’s placement of 10-year domestic bonds worth KZT 61.4 billion ($ 418 million) on September 27, as well as an domestic bond placement by state energy company KazMunaiGas and the listing of bonds by the Almaty akimat (city administration). Meanwhile, despite the efforts of the KASE and the Regional Financial Centre of Almaty (RFCA), the agency set up to develop Almaty as a regional financial hub, the local exchange remains relatively illiquid. Air Astana, Kazakhstan’s flag carrier, plans to spend $ 500 million by 2015 to expand its fleet of aircraft, the airline’s president Peter Foster said on Wednesday


5.4.         Financial operations


Experts on the PKK (Partiya Karkaren Kurdistan: PKK) believe the financing operations have always been fairly ad hoc and built on personal friendships and clan connections rather than any bureaucratic division of labour. It is unclear who is the current head of the PKK's financial operations. The PKK has long been suspected of substantial involvement in drug trafficking, particularly of heroin, which is believed to have become a more important source of income after state support was withdrawn and as diaspora funding has become more difficult to organise. This example is well shown the importance of transcparency and risk management.

In Kazakhstan, the sectors attracting the most investment between 1993 and 2003 were mining; processing industries; and real estate, leasing and services. Today, in pursuit of the Industrial Development and Innovation Strategy for 2003–2015, the following clusters were identified as priorities for investment:

·       Metallurgy;

·       Oil and gas machinery;

·       Agriculture and food processing; 

·       Construction materials;

·       Construction;

·       Textiles;

·       Tourism;

·       Transport and logistics.


Pier Two of the container port (Piraeus, Greek) may seem exactly the same as Pier One – certainly larger, but similarly flanked by gigantic ships and stacked with huge Lego brick-style containers. China's state-owned shipping giant Cosco last month took control of Pier Two in a £ 2.8 billion deal to lease the pier for the next 35 years, investing £ 470 million in upgrading the port facilities, building a new Pier Three and almost tripling the volume of cargo it can handle.

Parts of the Silk Road region contain highly fertile grounds suitable for growing cash crops and specialty crops. Although land cannot be owned by foreign investors, all of the countries provide for land use rights and leasing. More importantly, the Silk Road countries can provide the skilled agriculture labour and high-quality, inexpensive raw materials. What is needed from foreign investors is capital, modern management and marketing practices, and new technology for processing and packaging agriculture goods.

In April, 2009, Kazakhstan and China announced a $ 10 billion oil for loan deal including a $ 5 billion loan from the Export-Import Bank of China. Demand for credit and other forms of finance tend to exceed the available supply in most Central Asian countries, but Kazakhstan’s financial services are more developed than the others. Most companies of any size in Central Asia rely on reinvested earnings for any significant investment activities.