Kashgar, Xinjiang Uygur autonomous region is already a major exchange for retailers from Central Asia. Every Sunday, traders - mostly Uygur people - gather at a market near the "old town" that is stocked with cheap goods from across China, from hair clips to plastic sandals, which Central Asian businessmen and women snap up in bulk.

Now the city is set to become an economic development zone, or EDZ, as part of government efforts to transform the city into a prosperous trading post for China's Central Asian neighbors.

Authorities have announced they will introduce preferential investment and taxation policies to boost investment in this ancient city in the Xinjiang Uygur autonomous region, which borders Kyrgyzstan, Afghanistan, Uzbekistan, Tajikistan and Pakistan.

The EDZ is also expected to ease the high unemployment rate in the prefecture as well as improve trade links. But some believe that the move is to further maintain social stability by tackling the problem of employment and improving people’s living standard. Most of the rioters from Kashgar prefecture involved in last year’s July 5 bloody riot in Urumqi were unemployed 16- to 35-year-olds.

Kashgar - where the population is 94 percent Uygur, the majority of whom are Muslim - has for a long time been the frontline in China's battle against separatist, extremist and terrorist influences from abroad.

About 65 percent of products sent over the border from Kashgar last year were garments, while daily essentials made up 30 percent. So the first step, is for the EDZ to target enterprises specializing in those sectors.

But even setting up an economic development zone will be a challenge for the authorities due to the city’s poor infrastructure, including basic electricity and water supply.

Roads in the region are also a problem, and trade with Pakistan has been seriously affected this year due to an avalanche lake that formed on a major route.

Khunjerab Port, 430 km from Kashgar in Taxkorgan county on the western Pamirs plateau, is 4,700 meters above sea level and only opens between May and December because of the extreme winter weather conditions. Only one truck carrying road construction machinery was parked in the port's large parking lot when China Daily reporters visited this month.

Security is another major challenge facing the future of Kashgar due to its sensitive location - and the fragile state of some of its neighbors.

As well as the ongoing war against the Taliban in Afghanistan and Pakistan, trade with Kyrgyzstan has also been badly affected following the recent ethnic violence that killed 214 people.

Trade between Kashgar and neighboring countries has depended on their economic development and social stability and the ethnic unrest has brought trade between the two countries to a standstill.

Video: Zhang Tao