No Holds Barred

Doug Nolan

The world is now fully embroiled in a most precarious period. I wonder if the Fed is comfortable seeing the markets dash skyward – the small caps up 16.4% y-t-d, the Banks 15.9%, the Transports 15.2%, Biotechs 18.5% and Semiconductors 17.0%. Or, perhaps, they’re quickly coming to recognize that they are now fully held hostage by market Bubbles.

Similarly, I ponder how Beijing feels about January’s booming Credit data – Aggregate Financing up $685 billion in the month of January. Do officials appreciate that they are completely held captive by history’s greatest Credit Bubble? I have argued that Bubbles have become a fundamental geopolitical device – a stratagem. Things have regressed to a veritable global Financial Arms Race. As China/U.S. trade negotiations seemingly head down the homestretch, each side must believe that rallying domestic markets beget negotiating power. Meanwhile, emboldened global markets behave as if they have attained power surpassing mighty militaries and even nuclear arsenals.

February 15 – Reuters (Kevin Yao and Judy Hua): “China’s banks made the most new loans on record in January - totaling 3.23 trillion yuan ($477bn) - as policymakers try to jumpstart sluggish investment and prevent a sharper slowdown in the world’s second-largest economy. Chinese banks tend to front-load loans early in the year to get higher-quality customers and win market share. But they have also faced months of pressure from regulators to step up lending, particularly to cash-starved smaller firms. Net new yuan lending last month was far more than expected and eclipsed the last high of 2.9 trillion yuan in January 2018. Analysts… had predicted new loans of 2.8 trillion yuan, more than double the level seen in December.”

January’s record China new bank loans were 11.4% higher than the previous record from January 2018 – and 15% above estimates. Bank Loans expanded an imprudent $821 billion over the past three months alone, a full 20% above the comparable period from one year ago. Total Bank Loans expanded 13.4% over the past year; 28% in two years; 45% in three years; 91% in five years; and an incredible 323% over the past decade.

Led by bubbling bank lending, China’s Aggregate Financing expanded a record $685 billion during January. Flood gates wide open. While typically a big month for Chinese lending, January’s growth in Aggregate Financing was 50% above January 2018. It’s worth noting that the growth in Aggregate Financing over the past six months ran 7% above the comparable year ago period (and equates to an annualized pace of $3.7 TN). Consumer (largely mortgage) Loans expanded a record $146 billion for the month, 10% greater than the previous record from January 2018. Consumer loans expanded 18% over the past year; 43% in two years; 77% in three; and 140% in five years.

It’s too fitting: as the long-standing global superpower and ascending superpower are locked in tortuous negotiations, their respective financial power centers – securities markets in the U.S. and state-directed bank lending in China – rage. No Holds Barred.

“The reason I’m giving the central bank an “F” is look at what’s happening in China and Asia… Look at what’s happening in Europe from the economic perspective. The U.S. stimulated at full employment with our tax cuts. That stimulus is about to wear off. What I worry about is the last three recessions we’ve had in the U.S. we’ve cut rates 500 bps. Now we can only cut them 225 or 250.

And a week or two ago the San Francisco Fed put out a white paper about the benefits of negative interest rates. I hope that’s not where we’re going, but we can only cut rates about 225/250 bps to be at zero. So, this point of normalization should have happened long ago – not now. They were really late in the cycle in raising rates and now they’re stuck. So when we get into even a small recession, I don’t think we have the arrows in the quiver. And so let’s hope that we learned something from Japan and Europe about negative interest rates. They destroy the banking sectors and they have not helped their economies whatsoever…” Kyle Bass, Hayman Capital Management, appearing on Bloomberg Television, February 11, 2019

Seeing eye-to-eye with Kyle Bass, it has become difficult not to be thinking ahead to the next recession. And while Chinese Credit and ongoing aggressive global monetary stimulus can no doubt prolong the “Terminal Phase” of this most prolonged worldwide boom, this comes at a steep price.

Between July 2007 and December 2008, the Fed collapsed fed funds 500 bps. At least as important, 10-year Treasury yields sank about 300 bps during this period (520bps to 213bps). After ending June 2007 at 6.26%, benchmark Fannie Mae MBS yields closed out 2008 at 3.89%.

The Fed retained significant firepower to counter the bursting of the mortgage finance Bubble. Between August 2007 and March 2009, benchmark 30-year mortgage rates sank from about 6.70% to 4.85%. Importantly, by collapsing rates and purchasing large quantities of mortgage-backed securities, the Fed orchestrated a major mortgage refinancing boom. This, along with scores of government-assistance programs, allowed tens of millions of indebted homeowners to significantly reduce monthly mortgage payments. In particular, millions of higher-risk borrowers were able to replace old high-rate subprime mortgages for prime mortgages with dramatically lower payments.

At 4.37%, 30-year conventional mortgage rates are today already below the lowest levels from 2009. And with the vast majority of borrows over recent years having refinanced at historically low mortgage rates, there’s limited prospects for reduced monthly payments to dampen financial burdens during the next recession.

Worse yet, student loan debt has more than doubled since the crisis. And when the next recession hits, there will be record amounts of auto and Credit card debt.

February 12 – Reuters (Jonathan Spicer): “Some red flags emerged for the U.S. economy late last year as credit card inquiries fell, student-loan delinquencies remained high and riskier borrowers drove home automobiles, according to a report that could signal a downturn is on the horizon. The U.S. household debt and credit report… by the Federal Reserve Bank of New York, showed that the overall debt shouldered by Americans edged up to a record $13.5 trillion in the fourth quarter of 2018. It has risen consistently since 2013, when debt bottomed out after the last recession. While mortgage debt, by far the largest slice, slipped for the first time in two years, other forms of borrowing rose including that of credit cards, which at $870 billion matched its pre-crisis peak in 2008.”

Auto lending, in particular, has gone through a protracted – arguably unprecedented – period of loose lending.

February 12 – Washington Post (Heather Long): “A record 7 million Americans are 90 days or more behind on their auto loan payments, the Federal Reserve Bank of New York reported…, even more than during the wake of the financial crisis era. Economists warn this is a red flag. Despite the strong economy and low unemployment rate, many Americans are struggling to pay their bills. ‘The substantial and growing number of distressed borrowers suggests that not all Americans have benefited from the strong labor market,’ economists at the New York Fed wrote… A car loan is typically the first payment people make because a vehicle is critical to getting to work, and someone can live in a car if all else fails. When car loan delinquencies rise, it is a sign of significant duress among low-income and working-class Americans.”

February 13 – CNBC (Sarah O'Brien): “As Americans' appetite for new cars continues unabated, an advocacy group is sounding the alarm over the growing level of auto debt carried by U.S. consumers. In a report…, U.S. PIRG warns that the continuing rise in auto debt is putting many consumers in a financially vulnerable position, which could worsen during an economic downturn… ‘More and more people are buying too much car for what they can afford,’ said Ed Mierzwinski, senior director of U.S. PIRG's federal consumer program. The group's new report delves into the financial implications and policy-related aspects of Americans' reliance on cars. It shows that the aggregate amount of auto debt that consumers carry — roughly $1.27 trillion — is 75% more than the amount owed at the end of 2009… Overall, auto debt accounts for about 9% of total U.S. consumer debt, up from 6% in late 2011… Among subprime borrowers — those with credit scores below 620— the delinquency rate was 16.3% in mid-2018. In 2015, that figure was 12.4%... The average price of a new vehicle is now about $37,100, compared with $27,573 five years ago… As of January, the average amount financed was $31,707 and the average loan length had reached 69.1 months, up from 61 in 2010…”

And from the PIRG report: “The rise in automobile debt since the Great Recession leaves millions of Americans financially vulnerable — especially in the event of an economic downturn… Of all auto loans issued in the first two quarters of 2017, 42% carried a term of six years or longer, compared to just 26% in 2009… Many car buyers ‘roll over’ the unpaid portion of a car loan into a loan on a new vehicle, increasing their financial vulnerability… At the end of 2017, almost a third of all traded-in vehicles carried negative equity, with these vehicles being underwater by an average of $5,100… The increase in higher-cost ‘subprime’ loans has extended auto ownership to many households with low credit scores… In 2016, lending to borrowers with subprime and deep subprime credit scores made up as much as 26% of all auto loans originated.”

When it comes to Bubbles, the more conspicuous they are the less likely they are to be deeply systemic. The “tech” Bubble was obvious, yet the most egregious excess was contained within the technology sector. The mortgage finance Bubble was much more systemic, with excesses spread about and not as apparent. I believe today’s Super “Tech” Bubble is much more systemic than back in 2000. And while subprime is not the key issue it was for previous Bubble, I would argue that excess in many key housing markets is comparable. Commercial real estate on a national basis is likely more vulnerable today than in 2007, and the same could be said for some regional housing markets (i.e. greater “Silicon Valley”, Los Angeles, Seattle, Portland, Atlanta). Today’s Bubble in leveraged lending and M&A is greater than 2006/2007. The Bubble in corporate Credit dwarfs that from the mortgage finance Bubble period. Excesses throughout the securities markets phenomenally exceed those from the prior Bubble period. Moreover, I suspect the current level of derivatives-related speculative leverage could be multiples of 2007.

February 13 – Associated Press (Martin Crutsinger): “The government surpassed a dubious milestone this week: Its debt topped $22 trillion — that’s trillion, with a ‘t’ — for the first time. Piles of federal debt have been growing ever higher for years, fueled by accumulating annual deficits, which themselves have been driven by tax cuts, government spending increases and the mounting costs of Medicare and Social Security and interest on the debt itself.”

Thinking Ahead to the Next Recession, we should de deeply concerned about our nation’s tenuous fiscal position. To see deficits approaching 5% of GDP - with unemployment and interest rates at such historically low levels - should have us all fearful. Of course deficits matter. After ending 2007 at $8.056 TN, federal Liabilities (from Fed’s Z.1) surged $11.86 TN, or 147%, to end Q3 2018 at $19.918 TN. Over this period, outstanding Treasury Securities jumped $11.367 TN, or 188%, to $17.418 TN. And after ending 2007 at $7.40 TN, Agency Securities increased $1.62 TN, or 22%, to $9.02 TN. Over this period, combined Treasury and Agency securities almost doubled to $26.44 TN, expanding from 92% to 128% of GDP.

During the last crisis, the collapse in rates and market yields significantly mitigated the Treasury debt service burden. This ensured an outsized percentage of huge deficit spending went to bolster the real economy, with relatively less to debt holders. Come the next recession, already huge deficits will expand much larger, likely with only meager benefits from lower borrowing costs. Worse yet, there’s a scenario where fiscal recklessness finally leads to some market backlash. At some point, out of control deficits could be compounded by rising market yields – central bank stimulus notwithstanding.

And we definitely cannot ponder the next recession without taking a global view. Since the last crisis, global Credit Bubbles have become highly synchronized, securities markets atypically synchronized, and economies uncommonly synchronized. Synchronization also applies within the markets – equities, investment-grade and “junk” corporate Credit, sovereign debt, M&A - “developed” and “developing.” Global asset prices – certainly including real estate – notably synchronized. When it comes to a synchronized global policy response, keep in mind that ECB and BOJ policy rates are basically at zero – with little evidence of benefits from negative rates. The ECB just ended QE, while the BOJ just keeps printing. With little effective ammo, policymakers exploit what they can to sustain the Bubble and hold fragilities at bay.

To be sure, today’s backdrop overshadows the world’s predicament heading into 2008/09. China and EM, in particular, were in the midst of powerful expansions in 2008 – burgeoning Bubbles readily resuscitated post-U.S. crisis. Fueled by China’s massive stimulus, the emerging markets became the “growth locomotive” pulling the entire global economy away from a downward spiral. Pondering the future, it is not at all clear how a vigorous downward spiral is repelled come the next crisis.

Policymakers continue to throw enormous stimulus at global markets and economies. Instead of stabilization, we’ve witnessed ongoing Bubble inflation and intensifying Monetary Disorder. And the more Bubbles inflate, the greater the underlying financial and economic fragilities – and the quicker the Fed was to conclude “normalization” and China was to, once again, aggressively spur lending.

What worries me most is that underlying instability and vulnerabilities have policymakers resolved to abrogate bear markets and recessions. Extraordinary measures continue to be taken to nullify business and market cycles, with apparently no appreciation for how vital adjustments and corrections are to sound financial and economic systems. Worst of all, structurally maladjusted and highly speculative global markets are emboldened as never before. Party like it’s twenty nineteen – with global financial, economic and geopolitical backdrops uncomfortably reminiscent of ninety years ago.


When trouble strikes, where should you hide? The case for gold

The Grand Central theory of markets

IMAGINE YOU have an assignation in New York. You have not been told where you should meet the other person and she has not been told where to meet you. You have no understanding of where to find her or where she might usually be found. She is as ignorant of you. You cannot communicate. You must somehow guess how to find each other and make those guesses coincide. Where should you go? And at what time of day?

A good answer is Grand Central Station at noon. That was the response of the majority asked by Thomas Schelling, a game theorist and Nobel prizewinner in economics, in experiments reported “The Strategy of Conflict”, published in 1960. People are often able to act tacitly in concert if they know that others are trying to do the same, said Schelling. Most situations throw up a clue, a “focal point”, around which to co-ordinate, even if it takes imagination as much as logic to find it.

Now imagine the world economy goes into a tailspin. There is panic selling of risky assets. Where should you seek safety? Cash is the most liquid asset; but which kind? The dollar is a natural focal point. Yet America’s fiscal indiscipline and its sizeable current-account deficit might give pause. Other currencies have their faults, too. There is one other destination you might consider, if only because others are starting to think the same way. And that is gold.

A lot of people respond to this suggestion by backing away gently while claiming an urgent appointment elsewhere. Gold keeps some strange company. Ardent gold bugs seem to know a lot about firearms, the best places with access to fresh water and the best ways to preserve food. And what, after all, are its merits? It is supposed to be an inflation hedge. Yet there is not much of that to hedge against. Inflation barely threatens the standard rich-world target of 2%. And after gaining $100 an ounce recently, gold is hardly cheap by past standards, in inflation-adjusted terms (see chart).

Consider the alternatives, though. The euro is flawed. It has no unique sovereign issuer to stand behind it. And the yuan is not a currency you can trade easily. The yen, admittedly, is a good bolthole. Japan’s net foreign assets—what Japan’s residents own abroad minus what they owe to foreigners—are worth $3trn, or 60% of annual GDP. In a crisis, some of that capital comes home, pushing up the yen. Those seeking safety follow suit. The Swiss franc has similar appeal.

Still, there is a downside. Past form suggests both countries are likely to cap a rise in their currencies by printing more of them. Short-term interest rates have been negative for years in Japan, Switzerland and the euro area, in part to deter currency strength. By contrast gold’s yield—zero—seems almost racy.

And the dollar? As a global currency it has no peers. During the last big crisis, in 2008, the dollar rallied. There had been lots of global borrowing in greenbacks. So when trouble struck, there was a scramble for dollar liquidity. The world still has a large short position on the dollar, in that there has been heavy borrowing in the currency beyond America’s shores. Yet the world is also long dollar assets. America’s listed firms make up the bulk of global stockmarket indices. Its government-bond market has swollen to 100% of GDP. And the dollar still accounts for the bulk of official reserves.

Tellingly, the managers of those rainy-day funds seem a mite concerned that they are crammed into the same spot. The share of dollars in the $10.7trn of reserves reported to the IMF has dropped from over 65% when Donald Trump was elected president to below 62% in the latest figures. This may in part be a response to growing political risks. The dollar’s central role in global trade and finance allows America to impose financial sanctions to great effect. It has been doing so with greater frequency, so Russia, for instance, has drastically cut the dollar share of its reserves, to 22%, while raising the shares of euros and yuan. Russia has been a big buyer of gold, too. In that, it is not alone. Net purchases of gold by central banks rose by 74% last year to the highest since 1971, the year the dollar’s peg to the gold price broke.

Now, as then, there are growing concerns that the dollar is a crowded trade. It is as if there are so many people in Grand Central Station that it is impossible to find the person you’re supposed to meet there—or if you do find them, you cannot fight your way out without mishap.

It is why gold is starting to appeal again as a spot to converge upon. You would have to mix with some strange people there. But can you really say that you would never visit?

Can China Turn the Middle of Nowhere Into the Center of the World Economy?

In the barely inhabited steppes of Central Asia, it is establishing the next foothold in its trillion-dollar campaign to transform global infrastructure.

By BEN MAUK Photographs and Video by ANDREA FRAZZETTA

The Eurasian Pole of Inaccessibility is a striking name for an absence. It is the point farthest from a sea or ocean on the planet. Located in China just east of the border with Kazakhstan, the pole gets you a good distance from harbors and coastlines — at least 1,550 miles in any direction — into an expanse of white steppe and blue-beige mountain that is among the least populated places on earth. Here, among some of the last surviving pastoral nomads in Central Asia, nestled between two branches of the Tian Shan range on the edge of Kazakhstan, the largest infrastructure project in the history of the world is growing.

About 80 miles from the Pole of Inaccessibility, just across the border in Kazakhstan, is a village called Khorgos. It has spent most of its existence on the obscure periphery of international affairs, and its official population is just 908. But over the last few years, it has become an important node of the global economy. It is part of an initiative known informally as the new Silk Road, a China-led effort to build a vast cephalopodic network of highways, railroads and overseas shipping routes, supported by hundreds of new plants, pipelines and company towns in dozens of countries. Ultimately, the Belt and Road Initiative, or B.R.I., as the project is more formally known, will link China’s coastal factories and rising consumer class with Central, Southeast and South Asia; with the Gulf States and the Middle East; with Africa; and with Russia and all of Europe, all by way of a lattice of land and sea routes whose collective ambition boggles the mind.

Khorgos is a flagship project of this work in progress, an international shipping hub and free-trade zone that its promoters say is poised to become the next Dubai. Thanks to its location at the junction of the world’s soon-to-be-largest national economy and its largest landlocked country, Khorgos has become an unlikely harbinger of the interconnected planet: a zone fully enclosed by the logic of globalization, where goods flow freely across sovereign borders, following corridors designed to locate every human being on the planet within a totalizing network of producers and consumers, buyers and sellers.

Such victories of the global and industrial over the local, isolated and rural are heralded as the inevitable future — if there is to be a future — of our species. What would that future look like? Whom would it benefit? What would it cost? To find out, last July I caught a sleeper train from Almaty, Kazakhstan’s largest city, to the Chinese border, where I woke up in a train yard surrounded by desert.

Khorgos is one of a cluster of villages encircling a former trading post of the ancient world called Zharkent. From Zharkent, I hoped to arrange a ride to the border. Frescoes of camel caravans flanked the entrance gate on Silk Road Avenue. In a central square stood a rainbow-colored mosque with the sweeping eaves of a Chinese pagoda and an inscription in Uighur enjoining visitors not to forget their past. Next to the mosque was the warren of chopped-up shipping containers that serves as Zharkent’s central market. Taxi drivers hung unhopefully around the watermelon stands.

Nunur, a farmer and taxi driver whose family fled from China’s Xinjiang region into Kazakhstan when he was a child. Andrea Frazzetta/Institute, for The New York Times

Among the drivers was a farmer named Nunur, who had come to Kazakhstan from China in 1962, when he was a young boy and Kazakhstan was a Soviet Socialist Republic. That year, more than 60,000 Chinese Uighurs and Kazakhs escaped to the Soviet Union, crossing with Soviet passports they received from the consulate in Xinjiang and with the apparent cooperation of Chinese border guards. Nunur remembered his parents walking him over red hills at night toward the checkpoint at Khorgos. “They opened the border and let us go into Soviet territory,” he recalled. There were rumors that his relatives who stayed behind were imprisoned or killed. (Nunur, fearing trouble from the authorities, asked that I use only his first name.) His parents, who had raised wheat in China, found work on a collective farm. His mother became a cook while his father learned to drive tractors and Nunur to repair them. He became an expert mechanic. “I’m a master without a diploma,” he said.

I asked Nunur to drive me to a place near the border where we could take in the booming hub of Khorgos at a glance. On the way, we passed his cornfields, apportioned to him after the breakup of the collective farm. Even as Kazakhstan modernized following its 1991 independence, growing rich by regional standards from the sale of oil and outfitting a new capital city with glossy architectural marvels, the eastern border with China remained sparsely developed, its economy dominated by livestock and grain production. Nunur said his village still had no indoor plumbing, and as we left his fields we passed some of the ruins of centralized planning the Soviets left behind: a former winery, a shuttered milk plant.

China’s plans are significantly more ambitious, and they reach far beyond eastern Kazakhstan. The “belt” of the B.R.I. refers to the Silk Road Economic Belt, a tangle of rail and highway routes currently vining their way untidily across the continent from eastern China to Scandinavia. The “road” is the Maritime Silk Road, a shipping lane that will connect Quanzhou to Venice, with prospective stops along the way in Malaysia, Ethiopia and Egypt. To date, at least 68 countries, accounting for nearly two-thirds of the planet’s total population, have signed on to bilateral projects partly funded by China’s policy banks and other state-owned enterprises. Chinese firms are building or investing in new highways and coal-fired power plants in Pakistan, ports in Greece and Sri Lanka, gas and oil pipelines in Central Asia, an industrial city in Oman and a $6 billion railway project in Laos, which in 2017 had a G.D.P. of less than $17 billion. China’s port holdings stretch from Myanmar to Israel and from Mauritius to Belgium. It has spent an estimated $200 billion on B.R.I. projects so far, mostly in Asia, and has implied it will spend a total of $1 trillion on hundreds of projects around the world in the coming years, dwarfing the Marshall Plan by roughly an order of magnitude. When the investments from all the participating countries are combined, the estimated cost rises to $8 trillion.

The B.R.I. is so big and multifarious that describing it can feel like trying to narrate the weather conditions of the entire planet. Some individual components span hundreds of miles and are themselves dauntingly complex and international, like the $68 billion China-Pakistan Economic Corridor, or the stalled and scandal-mired Bangladesh-China-India-Myanmar Corridor. Taken as a whole, the B.R.I. is unfathomable. But I had heard that, at Khorgos, a pioneering outpost, I could get closer than anywhere else to appreciating the scope of its aspirations.

Nunur drove me through his village to an overlook within view of a border sentry post, a few miles from the spot where he crossed into Kazakhstan almost six decades before. We parked near a small rock-crushing plant above a valley of bright green cornfields. Beyond the fields, through a blue haze, I could see this improbable new crossroads of the global economy.

Khorgos Gateway, a dry port where goods can be transferred among the trains crisscrossing Asia and Europe. Andrea Frazzetta/Institute, for The New York Times

The Chinese side of the border was easiest to spot. Since 2014, an instant city of 100,000 people, also called Khorgos (sometimes spelled Horgos), has appeared; its dark high-rises glittered in the sun. The Kazakh side of the border was less impressive from afar, but I knew it now hosted a first-of-its-kind free-trade zone, opened on territory shared with China. Behind a copse of cypress trees, I could also make out the gantry cranes of the new dry port — an inland shipping-and-logistics hub for freight trains — that began operating in 2015 and could soon be the largest port of its kind in the world. Adjacent to the dry port was a nascent railroad company town, and other plots nearby were cleared for factories and warehouses to be staffed by some of the future residents of the city of 100,000 that, if all goes as planned, will soon rise to match the one across the border.
The manager of the plant wandered over. He asked whether we wanted to get through the checkpoint, beyond which was the last village in Kazakhstan and, beyond that, China.

We got back in the car and pulled up to two guards who stood at the gate, rifles slung over their shoulders. They looked young and bored. The manager shouted the name of one of them, who walked shyly up to the passenger-side window. It seemed as if everyone in town knew everyone else.

“Give me some sunflower seeds,” the manager said. The guard pulled a bag from his pocket and poured seeds into the manager’s cupped hand until it overflowed. The manager explained that we wanted to see China. The guard shrugged and raised the boom gate.

Two miles beyond the checkpoint, across a valley of farmland, a tangerine ridge signaled the start of China’s largest territory, Xinjiang Uighur Autonomous Region. The border was somewhere in the valley beneath us. If we kept going, we would arrive at the Chinese sentry post we could just make out at the top of a train of switchbacks. We didn’t test it, however. In recent years, the Chinese government has erected the most advanced police state in the world in Xinjiang, targeting the region’s Turkic Muslims, especially its Uighur ethnic group, who make up about half the region’s population. As part of what Chinese Communist Party literature describes as “de-extremification” efforts to combat terrorism, authorities have created an exclusion zone of state surveillance, arbitrary mass internment, brainwashing and torture that covers an area more than four times the size of Germany and includes a population almost as big as Australia’s. According to the United States State Department, between 800,000 and two million people, or up to 15 percent of Xinjiang’s Muslim population, have been incarcerated in a growing network of more than 1,000 concentration camps.

Zharkent’s central market, where chopped-up shipping containers are repurposed into stalls. Andrea Frazzetta/Institute, for The New York Times

You couldn’t see any of that from our perch at the border. Everything looked peaceful. To our left, a shepherd’s path ascended into white-capped mountains where herdsmen grazed sheep and cattle in summer, far above the fields of corn and sunflowers. To our right, beyond the ridge, the high-modernist future of international commerce was springing up out of the ground. You could squint and imagine you were looking at a time-lapse photo of the entire history of collective human activity, from the first wandering goat-herder all the way to the present.

China has never released any official map of Belt and Road routes nor any list of approved projects, and it provides no exact count of participating nations or even guidelines on what it means to be a participant. But this fuzziness may be one of its defining advantages. Rather than a list of megaprojects and bilateral deals, some of which might stumble or fail, the B.R.I. can be understood as a vaguely visible hand guiding all the interlocking developments in infrastructure, energy and trade where China plays any kind of role.

It is also a framework through which China’s leaders can present virtually any component of its foreign policy, from a soda-ash plant in Turkey to China’s first foreign military base, in Djibouti, as part of a nonthreatening vision of what party representatives like to call “win win” global development. In recent years, China has floated several expansions of President Xi Jinping’s initial Belt and Road vision that make its scope seem all but limitless: the “Digital Silk Road” into the frontiers of the virtual, the “Pacific Silk Road” to South America, and the Arctic-crossing “Silk Road on Ice.” Xi himself has meanwhile extolled the merits of globalization at Davos and worked to brand his “project of the century” as a natural extension of the spontaneous trade routes that once laced across the Eurasian continent.

Critics have described the B.R.I. as a new kind of colonialism or even part of a strategy of “debt-trap diplomacy,” seducing cash-poor countries with infrastructure projects that are unlikely to generate enough revenue to cover the interest on the loans that funded them. That is the unhappy situation at the China-funded Port of Hambantota in Sri Lanka, which the China Harbor Engineering Company took over after Sri Lanka fell behind on debt service. The Center for Global Development lists eight countries that face high risk of “debt distress” from B.R.I. projects that they can’t afford.

Kazakhstan is poised to play a literally central role in China’s plan. The B.R.I. was first announced in Astana, at a 2013 ceremony attended by Xi and Kazakhstan’s longtime president, Nursultan A. Nazarbayev. At the same event, Xi and Nazarbayev also celebrated the opening of a joint gas pipeline and signed $30 billion worth of trade and investment agreements. Although in the past Kazakhstan’s economy has tended to orbit Russia’s, in 2007 China edged out Russia as Kazakhstan’s top importer, and some critics fear that the B.R.I. is leading the country deeper into economic vassalage. “Some people think that China is too big,” Nygmet Ibadildin, an assistant professor of international relations at Kimep University, in Almaty, told me. “Kazakh people want a win-win with the B.R.I., but in these situations China wins more often.”

    The Nurkent workers’ settlement. Andrea Frazzetta/Institute, for The New York Times

Even in a country with few meaningful democratic rights, there are risks to courting foreign investment. In 2016, a proposed law that would have permitted parcels of farmland to be leased to Chinese companies sparked nationwide protests, leading Nazarbayev to table the measure.

The human rights crisis in Xinjiang has not helped China’s standing in Kazakhstan, either, although the Kazakh government has been careful not to make any public statements that might alienate an important economic partner. While diplomats may be negotiating on behalf of ethnic Kazakhs in Xinjiang behind closed doors — in January, the Kazakh foreign ministry announced that China would allow 2,000 ethnic Kazakhs to give up their citizenship and cross the border into Kazakhstan — the government is not letting the presence of a prison state across the border interfere with its collaboration with China.

That may be largely thanks to the immediate economic concerns of both states, not to mention a shared penchant for autocracy, but it may also owe something to the unprecedented nature of the B.R.I. In many participating countries, the project’s very novelty seems to lend itself to gauzy optimism. In September, the Chinese state-run media group People’s Daily commemorated the fifth anniversary of the B.R.I. with a music video modeled after Coca-Cola’s famous 1971 “I’d Like to Buy the World a Coke” TV spot. The new video featured altered lyrics like “I’d like to build the world a road/And furnish it with love,” sung by smiling representatives of dozens of participant nations, decked out in ruquns, hijabs and dashikis. Rather than defining the initiative in any concrete way, the video slyly co-opts Coke’s ability to serve as empty cipher, meaning anything to anyone. Whatever it is, the B.R.I. is “what the world needs today/It’s the real thing.”

Khorgos Gateway rises out of the flat desert basin, a pale yellow moon base of cranes and storage silos into which, every so often, a freight train slowly rolls. A trio of rail-mounted gantry cranes loomed 50 feet overhead as I arrived on a damp, overcast morning. Khorgos Gateway may be the most advanced port in Central Asia, but it retains some of eastern Kazakhstan’s rustic atmosphere. When I walked into the lobby of the dry port’s main offices, a security guard was handing out apples he had picked in his garden.

The chief executive of Khorgos Gateway, Zhaslan Khamzin, welcomed me into a tidy office overlooking the freight yard. “The future lies here,” he said proudly. Khorgos was blessed by its position in the middle of Eurasia. “Look at a map, and you’ll see China on one side, Europe on the other, Russia to the north and the Caucasus and Iran to the east. Why am I pointing this out? Precisely because 90 percent of cargo traffic to these countries is currently made by sea.”

Tourist attractions at the International Center for Border Cooperation, a free-trade zone straddling the Chinese-Kazakh border. Andrea Frazzetta/Institute, for The New York Times

Since the dry port’s inaugural train passed through in 2015, Khamzin said, companies who manufacture goods in China have begun to recognize the advantages of a modernized overland trade route across Asia. The dry port has transferred John Deere combines to Azerbaijan, he claimed, and Hewlett-Packard parts to Western Europe. He added that it may be much cheaper to ship containers by sea, but it can take more than three times as long, and air transit is the most expensive by far. By contrast, a container passing through Khorgos can travel from a Chinese point of origin to Europe in about 14 days, faster than the sea and cheaper than the air. “We’re going to be a central distribution point,” he concluded. If all goes well, according to company forecasts, in a few years Khorgos Gateway will be the largest dry port in the world.

Out in the shipping yard, wild dogs sniffed at stacked containers. It started to rain. A train had just pulled into port, and workers in yellow slickers were jogging out to meet it. Friendship between nations notwithstanding, Chinese border authorities are tight-lipped about freight schedules. The port sometimes learns about an impending arrival only an hour before it appears on the horizon, whereupon a swift ballet of machine and human movement begins. A siren blared as a gantry crane began to creep toward me through the mist. The three 41-ton cranes straddled six rail lines — three are the wide-gauge rails that stretch across the post-Soviet world from Helsinki to Ulaanbaatar; three are the standard gauge used in both China and Europe — and from my perspective they appeared to tower impossibly over the mountains around us. From a dangling control booth, a crane operator lowered containers onto their beds with dull-eyed expertise.
The national railway company of Kazakhstan owns 51 percent of Khorgos Gateway. The remaining 49 percent is split between two Chinese state-owned companies. Khamzin viewed China’s participation not as economic imperialism but as proof of the port’s likelihood of success. The Chinese, he explained, “are the kind of people that if they saw no commercial opportunity, they wouldn’t invest here.”

Such arrangements are less one-sided in Kazakhstan than in some of the more debt-strapped B.R.I. countries, so it’s very unlikely that what happened in Sri Lanka will happen here. But Chinese investments have in all likelihood muffled Kazakhstan’s response to the crackdown in Xinjiang.

Each train that arrives at Khorgos has to pass through the Chinese region, which is home to 24 million people, including more than 12 million Uighurs and about 1.5 million Kazakhs. Although political unrest has troubled the region for decades, including, in recent years, a spate of knife attacks and bombings by Uighur separatists, authorities in Xinjiang have responded with brutal asymmetry, rounding up hundreds of thousands of Uighurs alongside thousands of ethnic Kazakh and Kyrgyz residents in a sweeping internment drive the scope of which rivals Mao’s Cultural Revolution. Their “offenses” range from open displays of religious belief — wearing a beard, praying in public, owning a Quran or refusing to smoke or eat pork — to simply traveling with or even speaking to relatives abroad. For those not yet detained, Xinjiang has become a dystopian zone of extralegal checkpoints, patrols, GPS tracking and random home inspections. 

A Kazakh man carting goods out of the I.C.B.C. Local ‘‘carriers’’ regularly help shoppers circumvent customs limitations on purchases. Andrea Frazzetta/Institute, for The New York Times

Some experts say the camps and other security measures are partly in reaction to the increased freight traffic across Xinjiang, much of which now comes through Khorgos Gateway. “The role of Xinjiang has changed greatly with the B.R.I.,” Adrian Zenz, an academic expert on China’s minority policy, told me. China’s B.R.I. ambitions have transformed Xinjiang from a fringe territory into what party leaders call a “core region” of development. That’s why awareness of the camps among people in places like Kazakhstan was such an issue, Zenz said. “It has significant potential to cast a very negative light on the Belt and Road.”

After my tour of the dry port, I headed a mile down the road to Nurkent, a newly built town of low bungalows and apartment blocks. For all its symbolic importance, Khorgos Gateway is still a modest operation; if it were a United States seaport, its 2018 throughput would place it somewhere around the 26th-largest in the country, beneath the ports of Mobile, Ala.; Boston; and Gulfport, Miss. There are just 190 employees, which Khamzin said was close to capacity, and most of them live in Nurkent, alongside railroad workers, police officers, border guards, customs officials and other agents of the new frontier. Except for the cawing of crows nesting within an apartment building’s crumbling gables, the town was silent. During a visit to the region in 2016, Nazarbayev predicted the population would grow and merge with Zharkent to form a large city, but this was hard to visualize. The site of a planned expansion was marked by a roundabout with a tiered silver gateway — the “2001” obelisk as imagined by Frank Gehry — through whose arch I could see only an untended field of scrubland.

As I stood looking at the archway, a car pulled up. A man in straw hat and sandals hoisted himself out of the passenger side. “I guard this place,” he said. He uncoiled a hose on the ground and began watering the grass around the gate. “This is the double door to the future of Nurkent, where the city will rise up.”

Khorgos’s other major landmark is a boomtown of open borders known as the International Center for Boundary Cooperation, or I.C.B.C., which China and Kazakhstan established in 2011 about six miles from the dry port. Here it is not only the goods that move freely back and forth but also the people. In this duty- and visa-free zone, Kazakh citizens willing to brave the hourlong wait at customs control are permitted to enter a walled section of the Chinese side of Khorgos across the border to buy cheap linens and electronics, and Chinese tourists may enter a walled leisure area inside Kazakhstan to buy souvenirs and eat Kazakh delicacies like shashlik and laghman.

A United Nations human rights panel describes the entirety of Xinjiang as a “massive internment camp,” but that didn’t stop workers I met at the dry port from suggesting I cross into China by way of the I.C.B.C. Khorgos Gateway and the I.C.B.C. are the products of special economic development zones set up in coordination with China: industrial and commercial arenas designed to foster jobs and investments. There are dozens of such zones within China — the first, Shenzhen, is now a megacity of more than 12 million people — but Khorgos is the first to exist partly outside China’s own borders. That will soon change. Chinese officials have announced plans to build 50 more international zones in countries from Algeria to Vietnam.

The night train that runs between Almaty, Kazakhstan, and the eastern terminus, Altynkol. Andrea Frazzetta/Institute, for The New York Times

At Khorgos, the I.C.B.C. seems intended to complement the dry port’s vision of frictionless trade with an equivalent vision of borderless commerce, even if most Kazakhs understand the project as a wholesale depot for cheaply made Chinese goods. A popular hustle among shopkeepers from Almaty is to hire one of the locals who wait outside the I.C.B.C., and who are euphemistically called “carriers,” to help circumvent the weight limits on imports. By all accounts, customs officials tend to look the other way.

My state-assigned guide picked me up at my hotel in Zharkent in a sleek Mercedes sedan that he drove as if we had just robbed a bank. “Are you nervous?” he asked, laughing, as we careered around a watermelon truck. His name was Marat Abaiuly. If the I.C.B.C. was the most important of China’s outposts in Kazakhstan, Abaiuly was its ambassador, the handsome liaison to opinion makers and potential investors. He made his power known by blowing through checkpoints with a friendly honk or, if necessary, by leaping out of the car to grip the soldier on duty by the forearm.

It was 10 in the morning, and a line of wholesalers and hopeful carriers had formed beyond a fence topped with concertina wire. Bus drivers reclined inside their open cargo holds, chain-smoking and preparing to nap through the day. Inside the customs-control building, a construction worker was destroying the tile floor with a jackhammer. Improvised lines formed around the rubble.

China is said to be spending billions of dollars building up its side of Khorgos. By contrast, Kazakhstan’s share of the I.C.B.C. is mostly a dream of the future. Projects like a constellation of luxury hotels, a sports complex and a Disneyland-style theme park called Happy Land Khorgos have languished for lack of funding. Fields of rubble and stalled construction projects are scattered among the few small retail buildings and the yurt-shaped gift shops that are the Kazakh side’s most distinctive feature.

In recent years, the name Khorgos has instead become synonymous among Kazakhs with smuggling rings and high-profile corruption cases. In 2011, authorities arrested the head of customs at Khorgos as part of a larger takedown of a $130 billion smuggling ring. In 2016, the former head of the I.C.B.C. was caught on tape accepting a $1 million bribe for a construction bid. Locals do not tend to figure in these public scandals, but based on the crowds I saw in front of the border checkpoint, informal gray-market carrying at Khorgos seems to have replaced animal husbandry as the region’s main line of work. “Most locals work at the I.C.B.C. carrying cargo,” the chief executive of an Almaty-based truck transport company later told me, describing the work as a kind of pseudolegal smuggling. “That’s how they make money.”

Kazakhs in the mountains above Khorgos preparing to play their national sport, kokpar, in which they will try to put a headless goat carcass into a goal. Andrea Frazzetta/Institute, for The New York Times

Abaiuly arranged for an I.C.B.C. van to drive us across the open border into China, where the main attractions for visiting Kazakhs are four large, windowless malls. The malls are honeycombed with shops where women of all ages and a few older men sell underwear, electronics and an array of other inexpensive products under fluorescent lights. One mall was dedicated entirely to fur coats, a gift of ritual significance in Kazakhstan, particularly between in-laws at weddings. It was early, and there were no customers anywhere. Floor after floor of identical shops stood empty, their racks of odorless pelts doubled and tripled by wall-length mirrors.

Some workers I met were Chinese citizens from Xinjiang. I had heard that, in some towns, even talking to a journalist is considered grounds for detention, so I didn’t say much, and I was relieved to come across an outspoken furrier from Kazakhstan, Zhannur Erkenkyzy, who had worked at the border for six months. She got the job because she could speak Chinese, Russian, Uighur and Kazakh. She was also the store’s model, she said, and she showed me her Instagram page, on which she appeared nestled inside the furs of minks, foxes and beavers, although at the moment she was wearing no fur at all, just a black cocktail dress that reflected no light.

Erkenkyzy said she worked seven days a week unless she happened to ask for a day off. The time involved in crossing the unpredictable border meant that the job occupied most of her waking life, of which one highlight was catching thieves. “When we see a shoplifter, we put on red armbands and beat them with sticks,” she said excitedly. Abaiuly interrupted, whispering in low, snappy Russian: “Why are you saying such nasty stuff about us to the reporter?”

Back on the Kazakh side, we wandered the yurts, which were staffed by Chinese clerks who spoke no Russian or Kazakh. Tourists were milling about inside one of them, browsing rows of instant coffee, jade eggs and taxidermic hawks and antelopes. Outside, a row of golf carts and one stretch limousine waited to take the tourists back. I watched a group of women in ankle-length skirts cross a moonscape of rocks, heading toward China and dragging uselessly wheeled luggage behind them. When I asked Abaiuly about the prevalence of the carriers, he smiled. “On that subject I cannot speak,” he said.

At an outdoor restaurant, I met a shashlik cook who lived inside one of the yurts where Chinese tourists ate. He left and re-entered the I.C.B.C. once a week to stay out of legal trouble, and said it was cheaper than living anywhere else.

Zhannur Erkenkyzy, a Kazakh furrier and an in-house model who works on the Chinese side of the I.C.B.C. Andrea Frazzetta/Institute, for The New York Times

One way to read the history of Central Asia is as a record of interactions between the mounted nomads who were long the primary occupants of the Eurasian Steppe and the sedentary populations who lived among them. As late as the 1930s, the dominant activity on the steppe was pastoral: herding sheep, goats and other livestock. Herders roamed in large, shifting clans on either side of the Tian Shan and Altai ranges, traveling on horseback and occasionally fragmenting or forming political alliances. These nomadic hordes proved unconquerable until the late 18th century, when they began to fall to Chinese conquest and, in what is now Kazakhstan, to Russian — later Soviet — rule.

In 1929, the leaders of the Soviet Union determined that Kazakhstan’s pastoral work force would go to work on farms. This forced collectivization was framed as a civilizing mission to modernize a population whom many Russians had long viewed as primitive barbarians. Land formerly devoted to grazing was irrigated and turned over to wheat production, with the immediate result that around 90 percent of the country’s livestock died. The subsequent famine caused the deaths of one-quarter of the population of Kazakhstan and anywhere from one-quarter to one-half of all ethnic Kazakhs, a human-made catastrophe that ended nomadism as it had been practiced in the region for thousands of years. Kazakhs became a minority in the nation the Soviets had founded in their name.

Nomadic pastoralism remains central to Kazakh mythology — Nazarbayev describes himself as “the son, grandson and great-grandson of herders” — but as a practice it has retreated to the periphery of the country’s economy. Most of the surviving herders in this part of Kazakhstan practice a form of seminomadism known as transhumance, alternating between winters in a low-altitude village and summers in a pasture, or zhailau, in the mountains. I wondered how those in the mountains above Khorgos were reacting to the economic foment that had emerged around their winter homes. One morning I visited a village of herders in the Zhongar Alatau, a northern stretch of the Tian Shan named for the last nomadic khanate to rule over the steppes of western China.

It was Friday, and most of the men were at the village mosque. I asked the local damkeeper’s son, who said his name was Turar, to take me farther into the mountains where families graze their herds throughout the summer. I got into Turar’s old Lada four-wheel drive, and we rattled and bounced up the edge of a steep bank that commanded a wide prospect of sand dunes and crumpled foothills. Hawks gyred overhead. I thought to myself that the beauty of Kazakhstan defied description, but Turar, who had lived here all his life, managed to capture its pristine emptiness. “It’s like a screen,” he said cryptically. Then, to clarify: “Like a computer. Like the Windows screen.”

To reach the zhailau, we left Turar’s car at the dam where his family controls the flow of snowmelt and mountain spring through a Soviet-era irrigation canal. Before long, we arrived at an emerald slope where a single yurt sat embosomed in alpine lushness. Turar said this area was called the Black Gorge.

Cousins Arsen Akhatay and Temirlan Kamil in Kazakhstan. Andrea Frazzetta/Institute, for The New York Times

A friend of Turar’s emerged from the yurt, blinking at the sun. His name was Arsen Akhatay, and he’d been napping. Every spring, he helped drive the family livestock, a few hundred sheep and 50 cows and horses, up to the zhailau and tended them. He returned to the village when school started in the fall, leaving his parents to drive the animals back down. In between, there was a lot of free time. Sometimes he passed it playing kokpar, a popular Central Asian sport in which players fight over a headless goat carcass while on horseback. Akhatay was the attacker on his local team and was meant to be at training camp this week for nationals, but he’d fallen sick instead. He surveyed his sheep without enthusiasm. Each was labeled in resin with a large “5” marking it as a member of his family’s flock. A solar panel staked into the ground near the doorway to the yurt powered a Chinese-made radio and a four-inch TV set. Turar gestured farther into the gorge, where Akhatay’s family pastured their horses a mile or so in, and said that if you kept on in that direction, you’d hit China.

Akhatay was wearing a blue camouflage jacket, the kind worn by Kazakh police officers on field exercises. His cousin came out of the yurt wearing the same thing. During the school year they lived in a village near Zharkent called Turpan. Akhatay, who was about to start his senior year of high school, said he did not intend to look after sheep his whole life. I asked whether he wanted a job at Khorgos.

“Many people from the village work at the border as carriers,” he said. “There are many official jobs but also many unofficial.” All things being equal, he said, he wanted an official one. When he graduated, he planned to enroll at the military institute in Almaty to become a border guard.

On our drive down the mountain there was nothing to displease the eye, and before long we arrived at yet another small mountain village of white birches and potato gardens. Turar parked the car by a water pump and introduced me to a former classmate, a Kazakh named Zholaman Tashimkhan, who had come out to greet us.

We sat on the curb near the pump. Like Arsen, Tashimkhan spent most of the summer up in the mountains, but he was older and had already been drawn to the jobs at the border. He worked for a year for the railroad, a good job that is hard to come by through normal channels — “I used my connections,” he said, and laughed — but then his sister’s husband found him work as a carrier. “It’s not an official job,” he said. “Not a public job.” 

The trial of Sayragul Sauytbay, behind glass, a Chinese-born Kazakh woman who requested political asylum in Kazakhstan after fleeing Xinjiang. Andrea Frazzetta/Institute, for The New York Times

A few men from the village began to gather around the pump as we talked. Tashimkhan explained that he had worked for a wholesaler based in Zharkent, crossing into the I.C.B.C. four or five days a week to bring household products, mostly bedsheets and linens, back into Kazakhstan. He was paid according to how much he managed to get through customs. On an average day, he might earn $15 or $20 — good money — and occasionally as much as $60. Customs enforcement was lax. “For us, you talk to the official working there, and you just bring things out,” he said.

More villagers had come out to the road until they completed a circle around us. Tashimkhan changed the subject, then joked with a friend that he was starting to think he would regret talking to me. An older man who had been pacing the street squatted down beside us and began conspicuously sharpening a sickle a few inches from my head. Turar suggested it was time for us to continue down the mountain. We got into the Lada and drove off.

The great commonplace of our time also happens to be true: The world is more connected than ever before. But if it is more connected, the world is also more administered — its people more coerced and surveilled, more susceptible to the designs of authoritarian leaders and more dependent on the fortunes of mercurial international markets — than at any point in human history. If the first fact has made some parts of the world freer, the second has made the rest of it less so.

A continuing trial at the local courthouse in Zharkent underscored this inversion, which seemed to me to lie at the heart of the developments at Khorgos. The case concerned Sayragul Sauytbay, a Chinese-born Kazakh woman who had fled Xinjiang and was requesting political asylum in Kazakhstan. Before the crackdown in Xinjiang, ethnic Kazakhs freely crossed the border to visit friends and relatives. But in 2016, as crossings became increasingly fraught, Sauytbay’s husband and two children decided to move permanently to Kazakhstan. Sauytbay, who was working in Xinjiang as a kindergarten director, remained in China with plans to join them; the rest of the family became Kazakh citizens in 2017. For more than a year, they met only in the free-trade zone at the I.C.B.C.

On April 5, 2018, without telling anyone, Sauytbay entered the I.C.B.C. with forged identity papers, then slipped into Kazakhstan by posing as a member of a tour group. A few weeks later, she was arrested and charged with entering the country illegally, and then her story began to emerge. Not long after her family had left China, Sauytbay was assigned to work at one of Xinjiang’s notorious detention camps. In her testimony, she described it as “a prison in the mountains,” with high walls and barbed wire that kept in some 2,500 inmates. She said she was forced by authorities to accept a teaching job there, indoctrinating the inmates in state propaganda, and she was warned that the penalty for revealing any information about the camps was death. The authorities confiscated her passport. 
Sauytbay and her son following her unexpected release by the courts. Her legal status remains uncertain. Andrea Frazzetta/Institute, for The New York Times

At her trial, Sauytbay provided some of the earliest testimony about life in Xinjiang’s camps. Her case made headlines in Kazakhstan’s national newspapers. She was married to a Kazakh citizen and was herself a “returnee,” a member of the diaspora of ethnic Kazakhs the government has been courting for years. But now prosecutors at Sauytbay’s trial were arguing that she should be deported back to China, where she claimed she would be arrested or even killed for having made public her knowledge of the camps.

Most people I’d met in Almaty seemed to think she had little chance of receiving asylum, much less Kazakh citizenship. The acquittal rate in criminal trials in Kazakhstan is around 1 percent, and hasn’t changed since the days of the Soviet Union. There was also the B.R.I. to consider. Kazakhstan might decide Chinese investment was more important than any international agreements on refugees. It wouldn’t be the first time a country was so swayed. In 2017, Greece vetoed a European Union statement criticizing China’s human rights record at the United Nations, a decision that critics linked to China’s controlling interest not just in Greece’s largest port but also in its public power grid. In January, China hosted a Silk Road Celebrity China Tour, inviting journalists from six B.R.I. partner countries — Egypt, Turkey, Pakistan, Afghanistan, Bangladesh and Sri Lanka — on a highly choreographed tour of a “vocational center” in Kashgar, another famous stop on the ancient Silk Road. According to the state-run Xinhua news agency, the visitors uniformly “praised the development and stability” of Xinjiang. An editor from Bangladesh singled out the region’s contributions “to the nonoccurrence of violence and terrorism.”

My last day in town coincided with what turned out to be the last day of Sauytbay’s trial. About 100 supporters had risen early and driven out from Almaty to the courthouse, which was opposite a park where marble busts of Soviet heroes watched over a playground. When the courtroom opened, the crowd crushed against the glass doors. I made it through with a handful of other reporters thanks to some strategic shoving by a few veteran activists; most of the crowd remained on the courthouse steps.

As the proceedings began, Sauytbay’s lawyer introduced into evidence a copy of the asylum application that she had just filed. Both the judge and prosecutor interrogated Sauytbay, who from behind a clear protective wall related how, when she was arrested by the Kazakh police, an official told her that she would be sent back to China to die and her children would become orphans.

Sauytbay freely admitted she’d escaped China illegally. She was willing to serve a prison sentence. She just didn’t want to be sent back. “There is no reason for me to live if I am not with my children,” she told the judge. Her family sat across the room, near an open window through which we could hear the crowd murmuring outside. 

The view from a summer pasture, or zhailau, for seminomadic Kazakhs in the Tian Shan mountain range. Andrea Frazzetta/Institute, for The New York Times

The prosecution had previously rejected any kind of a plea deal. So what happened next was that rare thing: a dramatic courtroom reversal. In a closing statement, the prosecutor cited the outpouring of support the case had received across Kazakhstan. She requested that the judge allow Sauytbay to serve out a period of probation at her husband’s house. “I ask you not to apply deportation,” she said. “I ask you to set her free in the courtroom.” Sauytbay’s eyes went wide. Her lawyer, who seemed stunned, agreed. A few moments later, sounds of cheering rang out on the courthouse steps.

“I was surprised the law was kept,” Rysbek Sarsenbay, a prominent opposition activist, told me later. He reasoned that the government must have weighed the consequences of deporting Sauytbay carefully against the risk of alienating China’s leadership. “Even as a dictatorship,” he said, “Kazakhstan must honor its international commitments.”

Once the judge issued the expected ruling — prosecutors and judges in Kazakhstan rarely disagree — Sauytbay was ushered from the courthouse to the top of the steps, where she embraced her son and thanked President Nazarbayev for his beneficence. A poet took the stage to extemporize a victory verse in Kazakh. The crowd repaired to a restaurant a few miles outside Zharkent, where a spontaneous release party began with the singing of the national anthem. Waiters descended with plates of beshbarmak, a national dish of boiled noodles and horse meat in onion sauce. When Sauytbay arrived, holding her son in her arms, everyone stood up and clapped. She told me she hoped her testimony would “shine a light of hope” for her compatriots in China. “They know there is a country that will always protect them,” she said.

The celebration may have been premature. As Sauytbay later told The Globe and Mail of Toronto, within a day of her release, her sister and two friends were arrested in Xinjiang — they have since disappeared into camps — and in October Kazakhstan denied Sauytbay’s asylum claim. For the time being, she is living at home with her family, but her legal status in Kazakhstan is uncertain.

Even if she manages to avoid deportation, Sauytbay is one of thousands of people with ties to Kazakhstan who have found themselves caught up in Xinjiang’s detention centers. At the release party, I found myself sitting next to a Kazakh woman named Qarlyghash Ziparova, whose nephew, a former Xinjiang official named Askar Azatbek, had disappeared inside the ostensibly neutral free trade zone of the I.C.B.C. Azatbek, who had become a Kazakh citizen a few months earlier, entered the I.C.B.C. in 2017 with a friend, whereupon a group of men drove up in two cars and detained them. The friend was released, but Azatbek was hauled off. They hadn’t even been on the Chinese side, the friend had said. Ziparova tried to complain to authorities in Kazakhstan, but without any luck. The I.C.B.C. told her there was no surveillance video, although she didn’t believe it. She didn’t understand how a Kazakh citizen could be taken away by China like that — without even a trial.

The ancient Silk Road was equal parts trade route and social network. The routes themselves were in constant flux and administered by no one, and they succeeded through incremental growth and local knowledge in response to changing needs — the exact opposite of the Ozymandian ambitions and sweeping autocratic statecraft that characterize the Belt and Road. For all its potential to create jobs and modernize infrastructures, the project has also created a halo of mass internment camps for the powerless and gray-market economies for the poor. While new official jobs in Khorgos are lifting a lucky few out of poverty, it is far more common to find farmers and herders moonlighting as taxi drivers, security guards or smugglers, part of a precarious network of low-paid freelancers. Such work is susceptible by design to sudden changes in enforcement and depends on a constant influx of disposable workers. It seemed like a high cost for connecting the world.

I hired a taxi to drive me back to Almaty. We took a new highway that opened last year, part of a growing highway system affiliated with the B.R.I. and known as the Western Europe-Western China International Transit Corridor. The highway cuts the travel time in half, from six hours to just over three hours, and driving atop it felt like riding an air-hockey puck. There were no rest stops or gas stations, and the few landmarks I could see stood at an unobtrusive distance. They included an old train station, a pumping house for a Chinese oil pipeline and the alien forms of a half-built wind farm courtesy of SANY Group, the Chinese manufacturing behemoth. As the sun became a narrow red eye on the horizon, a dust storm descended the cliffs to our left and crossed the road into empty veld. There were no cars in sight. It was less a road than the idea of a road.

The driver didn’t know anything about the trial whose outcome I had just seen. He had never heard of Sayragul Sauytbay. He was happy to have such a fine new highway on which to drive his customers back and forth between Khorgos and Almaty. Kazakhstan, we agreed, was a beautiful country. He pointed to some fields he said would be full of cattle in the fall, then opened the sunroof and stuck his hand into the night air.

This article was researched with support from New York University’s Matthew Power Literary Reporting Award.

Ben Mauk is a writer based in Berlin. His last article for the magazine explored life on a floating village in Cambodia.

Russia’s support for Venezuela has deep roots

Rosneft is so heavily invested in the Maduro regime that the only option is to double down

Alexander Gabuev

Nicolas Maduro, president of Venezuela, right, brandishes a sword given to him as a gift by Igor Sechin, chief executive of Rosneft © Bloomberg

With the Kremlin offering to send in advisers to help embattled Venezuelan leader Nicolás Maduro as the US imposes sanctions, it is clear that the US and Russia are engaging in a new sort of proxy conflict in America’s backyard.

But this is more than Vladimir Putin’s version of payback for years of US involvement in places like Ukraine and Georgia or the US’s withdrawal from the mid-range nuclear arms treaty.

Russia’s policy on Venezuela is heavily influenced by Igor Sechin, the head of Rosneft, Russia’s national oil company. It is not only owed $3bn by Caracas, but also owns two offshore gasfields in the country and stakes in assets boasting more than 20m tonnes of crude.

The involvement of Mr Sechin, who met with Mr Maduro in Moscow in September and flew to Caracas in November, suggests that Russia’s national security policymaking is increasingly driven by a combination of corporate interests and ambitions of powerful members of Mr Putin’s inner circle.

A former military interpreter for Soviet troops in Angola, Mr Sechin has been at Mr Putin’s side since his days as deputy mayor of St Petersburg. He is arguably the most powerful man in Mr Putin’s entourage and responsible for overseeing the energy sector. Back in 2008 he cajoled Kremlin-friendly governments in Latin America to recognise two breakaway regions of Georgia, Abkhazia and South Ossetia.

After Nicaragua became the first state to do so, Mr Sechin visited Managua and pledged investments. The reward for Hugo Chávez, who recognised the two new “states” in 2009, was more than $2bn in loans to purchase Russian arms. Before long Mr Sechin established a consortium of the five largest Russian oil companies to invest in Venezuela.

But Russia did not have technology to process the heavy crude the fields produced, so the consortium would have to pay western companies billions to build additional facilities. Though senior Russian oil executives expressed reservations about the commercial viability of these projects, Mr Sechin, who had Mr Putin’s ear, went ahead with the idea and in 2013 became the official head of the consortium. Several private Russian companies have since left the consortium, selling out to Rosneft.

As the Venezuelan economy tanked, Caracas struggled to repay its Russian loans: more than $17bn since 2006 with more than $6bn still due. Half is owed to the Russian state. The other half is owed to Rosneft by PDVSA, Venezuela’s state-owned oil company.

When Caracas fell behind on debt payments in autumn 2017, voices in the Russian government questioned Mr Sechin’s approach. With Russia facing western sanctions, why should it throw away billions in a far away corner of Latin America? But Moscow became Venezuela’s lender of last resort.

Mr Sechin has more than Russian ideological and geopolitical needs at stake. In recent years, Rosneft expanded its stake in multiple oil and gas assets in Venezuela and took over a lucrative role marketing Venezuelan oil.

Russia is now so deeply invested in the Maduro regime that the only realistic option is to double down. Although Spanish group Repsol is weighing whether to quit oil-for debt schemes with PDVSA because of US sanctions, Rosneft is showing no sign of changing course. US support for regime change in Venezuela also serves Mr Sechin’s interests: if Mr Maduro is forced out and the new authorities publish damaging information on Russia’s deals with his regime, it will be easier to slough them off as a dirty trick by Washington.

Mr Sechin is not only the Putin ally whose interests may benefit from Russian foreign policy. Yevgeniy Prigozhin has parlayed his role as a Kremlin caterer into other lucrative state contracts overseas.

Evidence seems to be mounting that powerful individuals close to Mr Putin can all too easily sideline the country’s more careful bureaucrats. Rosneft’s deep ties to Venezuela and Russia’s efforts to insert itself into the crisis there together raise questions about whether the country’s leadership is acting to preserve national or corporate and private interests.

The author is a Senior Fellow at the Carnegie Moscow Center

Dirty money

Illicit financial flows are hard to stop

They are even harder to measure

WHEN FOREIGN aid enters developing countries, it is welcomed with handshakes and ribbon-cutting. Private money, by contrast, is sometimes smuggled across borders or siphoned into offshore bank accounts. Everyone agrees that such “illicit financial flows” are a problem. A report published on January 28th by Global Financial Integrity (GFI), a campaign group, estimates that illicit flows to and from developing countries are worth more than a fifth of their total trade with the rich world.

Governments have pledged to plug the leaks, including as part of the UN’s Sustainable Development Goals. If only they could reach agreement on what they are talking about. A few rich countries, notably America, complain that illicit flows are not properly defined. Statisticians are still puzzling over how they can be accurately measured.

Obviously, gun-running and drug-trafficking should count; in 2011 the UN estimated that financial flows linked to transnational organised crime were worth 1.5% of global GDP. Bribes, and the proceeds of unregistered trade in legal goods, such as cigarettes, probably should, too.

But broader definitions also fold in tax avoidance, which may not be illegal. The result is hopelessly vague, diverting attention from dirty money to smear legitimate businesses, argues Maya Forstater of the Centre for Global Development, a think-tank in Washington. Tax activists retort that the line between lawful and unlawful acts is often blurry. Developing countries lack resources to pursue complex legal cases, so big firms find it easier to get away with avoidance that should count as evasion.

Measuring illicit flows is even more fraught. One method exploits discrepancies in trade data. The exports that Ghana reports to France, say, should match the imports that France reports from Ghana. In practice, that is rarely the case. Traders may understate the value of exports, or overstate the value of imports, as a way of slipping money out of a country. They may also fiddle paperwork to dodge border taxes. Big inconsistencies hint at wrongdoing.

GFI combines this method with balance-of-payments data. In 2015 the High Level Panel on Illicit Financial Flows from Africa, a group chaired by Thabo Mbeki, a former South African president, used a similar approach to conclude that a net $50bn leaks out of the continent each year.

Both figures have been questioned. Some trade discrepancies are indeed caused by fraud, which is why misreporting is less of a problem where corruption is lower or accounting standards are higher. Yet they may also result from errors, quirks or transit trade. One UNCTAD report concluded that almost all South Africa’s gold leaves the country unreported, only for tax officials to point out that most of it was recorded, just in a different format.

A recent report by the World Customs Organisation concludes that existing methods are simply too unreliable to measure the scale of illicit flows. And anyway, trade data capture only one type of malfeasance (smugglers fly completely under the radar). Some experts take a different tack. Alex Cobham of the Tax Justice Network and Petr Jansky of Charles University, Prague, propose two indicators: one based on mismatches between where multinationals report their profits and where their real activity occurs, and another that is a measure of undeclared offshore assets.

Perhaps it would be simpler to abandon the catch-all term “illicit financial flows”. But its very vagueness is the reason it caught on. Rich countries like talking about corruption, which they blame on poor-country elites. Poor countries like talking about tax avoidance, which they blame on foreign multinationals. Loose language keeps everyone happy.

Except the unfortunate statisticians. A team of them from the UN is due to publish some first thoughts this year; it may be several years before an indicator is agreed on. In the meantime, it would be a shame if disagreements distract from action. Beefing up customs authorities, establishing public registries of beneficial ownership and exchanging more information between countries about the taxes citizens and companies pay could all reduce skulduggery—however it is measured.