China and Central Asian countries now have great potential for in-depth financial cooperation in areas like local currency settlements and supply chain finance as China-facilitated financing for Central Asia has bolstered local economic development, experts said.

According to China's Ministry of Foreign Affairs, the country has become the largest or the main source of investment for Central Asian countries covering Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan.

The Belt and Road Initiative led to the formation of financial institutions such as the China-Eurasian Economic Cooperation Fund and Silk Road Fund Co Ltd that have provided financing for projects under the framework of cooperation between China and Central Asian countries, the ministry said in an article on Tuesday.

Particularly, China and Kazakhstan have set up a $2 billion bilateral capacity cooperation fund to finance projects that will boost Kazakhstan's industrial development, create jobs and encourage local development. In 2018, the fund acquired a portion of the equity of the Astana International Exchange.

Calvin Fu, chairman of the China Innovation Finance Institute, said Central Asian countries have not only received funding from their cooperation with China but developed their own modern industrial and services systems on the back of China's production capacity, injecting impetus into local economic development.

Acknowledging that global debt risks have risen due to surging interest rates, Fu said the key to maintaining the sustainability of China's lending to Central Asian countries lies in ensuring that the investment projects funded are well managed and boost the real economy.

Looking ahead, Liang Haiming, dean of the Hainan University Belt and Road Research Institute, said China and Central Asian countries can widen their financial cooperation into more areas, such as internet finance, big data and advanced financial technology, which will bolster the efforts of Kazakhstan's capital Astana to build itself into an international financial center.

Liu Ying, a researcher at the Chongyang Institute for Financial Studies at the Renmin University of China, highlighted the potential for China and Central Asian economies to strengthen cooperation in terms of supply chain finance, local currency settlement and green finance.

With nearly four-fifths of China-Europe freight trains passing through Central Asia, there is the potential for China and Central Asian countries to strengthen cooperation in supply chain finance, Liu said.

Liu said local currency settlements between China and Central Asian countries now have a development opportunity as the trend of de-dollarization accelerates while local currency settlements can save both sides foreign exchange reserves that can be used for external debt repayments.

The People's Bank of China, the country's central bank, has signed currency swap agreements with its counterparts in Kazakhstan, Uzbekistan and Tajikistan. The agreements, experts said, have set the stage for further use of the Chinese currency renminbi in Central Asia.

"With trade between China and Central Asia occurring in both directions, using the renminbi to settle payments benefits both parties," said Robin Xu, deputy head of China research and head of Asia industrials research at UBS.

On the one hand, China is Central Asia's largest trade partner, Xu said, citing that he estimates trade with China represents more than 30 percent of the total trade value of the five Central Asian countries.

On the other hand, although he estimates that trade with Central Asian countries represents only around 1 percent of China's total trade, Xu said there is a big upside potential as the BRI evolves while land transportation connection between China and Central Asia improves.