Why China’s Free-Riding Is OK

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Why China’s Free-Riding Is OK

Critics argue that China’s failure to contribute troops to Iraq and Afghanistan mean it’s reaping the economic rewards without the security pain. It’s not so simple.

China’s limited support for the US-led counterinsurgency campaigns in Afghanistan and Iraq, despite the growing Chinese economic stake in these countries, has provoked some irritation among US observers over China’s ‘free riding’ on the back of dead European, American, and Afghan or Iraqi soldiers. S. Frederick Starr, chairman of the Central Asia-Caucasus Institute, caught the mood well when he said some might see it as, ‘We do the heavy lifting…And they pick the fruit.’

The Chinese government for its part has continued to reject suggestions that it contribute combat forces to the NATO-led International Security Assistance Force (ISAF) seeking to pacify Afghanistan. China has also dismissed inquiries about whether NATO could send supplies, even only non-lethal ones such as food and clothing, through Chinese territory to Afghanistan to support the coalition militaries there.

China’s security ties with Afghanistan resemble Beijing’s policies in Iraq, which have focused on investing in the Iraqi energy sector while shunning any major security role. In both Afghanistan and Iraq, Chinese policy makers are ambiguous about the US military role. They certainly don’t want Islamist extremists to triumph there, since they could then use these territories to attempt to spread extremism throughout China. Chinese officials have also traditionally avoided challenging the United States on core security issues—and the Obama administration has clearly identified the Afghan and Iraqi wars as two of them.

Having the Americans take the lead in fighting Islamists insurgents in Afghanistan and Iraq also relieves China of having to fight them directly. Chinese policy makers prefer that the United States and its allies bear the burden of countering radical Islamist movements outside of China, especially as alarm grows at how Islamist extremists are depicting their policies in Xinjiang as anti-Muslim.

Yet, while Chinese leaders don’t challenge the legitimacy of the US military operations in Afghanistan or Iraq, and indeed want the United States to continue to fight Islamist terrorism and promote Afghanistan’s and Iraq’s economic and political reconstruction, they don’t support maintaining a long-term Western military presence in these countries. Given these conflicting pressures, the Chinese government has publicly supported the Afghan and Iraqi governments, but sought to distance itself from the US-led counterinsurgency campaigns in both countries, as well as refraining from endorsing any lengthy Western military presence in these regions.

But although Chinese policy makers have excluded a Chinese military role in Afghanistan or Iraq, they’ve encouraged Chinese companies to invest in developing these countries’ natural resources. Recent Chinese investment activity has concentrated on gaining access to raw materials and developing the infrastructure required to transport these goods to China.

To focus on Afghanistan, after its government opened its energy, mineral, and raw material sectors to foreign investment in 2007, China rapidly became Afghanistan’s largest foreign investor with the surprise purchase by the Metallurgical Corporation of China (MCC) of a controlling stake in the Aynak copper field. According to the Afghanistan and British Geological Surveys, the Aynak copper deposit, located 35 kilometres south of Kabul at the northern end of Logar Province, contains 240 million tons of material with a grade of 2.3 percent copper in the central portion of the deposit. The November 2007 bid of more than $3 billion made that transaction the single largest foreign direct investment in Afghanistan. The state-owned MCC could offer a package of benefits that its private sector competitors couldn’t match, and in July 2009, MCC and Jiangxi Copper Co. started development work at the mine.

Subsequent revelations of vast untapped mineral resources in Afghanistan have undoubtedly peaked Chinese interest in developing rail connections and related commercial infrastructure in Afghanistan. According to recent reports, US geologists have rediscovered around $1 trillion of iron, copper, cobalt, and lithium reserves scattered around Afghanistan, including the Taliban-strong southern and eastern regions along the border with Pakistan. Pentagon officials believe the mineral resources will help transform conflict- ridden Afghanistan into a modern industrial state.  According to the Chinese government, Chinese firms were engaged in 33 infrastructure projects (such as road construction) in Afghanistan in 2008, valued at almost half a billion dollars, in addition to the Aynak copper investment. However, a difficult political situation, bad roads and the lack of railroads prevent exploitation and shipment of these resources to markets. 

China provides modest development aid to Afghanistan, supporting construction of hospitals and schools as well as other reconstruction projects.  Since 2002, when the new post-Taliban government was formed, China has converted all Afghanistan’s existing debts to China and provided more than 900 million yuan (about $130 million) in additional reconstruction assistance to the country. In addition, the Chinese government has already pledged an additional $75 million over the next five years. For example, millions of dollars have supported an irrigation complex at Parwan, Jamhuriat Hospital in Kabul, and a conference hall in Karzai’s presidential palace. Since July 2006, moreover, China has allowed hundreds of Afghan products to enter China without tariffs. In addition, China has trained more than 500 Afghan officials in a range of areas, ranging from diplomacy to counternarcotics to agriculture and health care. 

Despite their modest amounts of development aid, such China-supported projects gain considerable popular attention since they often employ Chinese workers rather than a collection of typically Asian third-country contractors seen on the US-supported construction sites. But the Chinese approach suffers from the same problem afflicting many other foreign projects in Afghanistan: funds are offered to build a facility but not maintain it. For example, although Chinese workers constructed a new 350-bed 10-story building for Jamhuriat hospital in 2004, it has remained unused since the Afghan government doesn’t have the funds or trained staff to operate it.

Unsurprisingly, energy security considerations also influence Chinese policy toward Afghanistan. The country is thought to have substantial natural energy resources, and the Afghan government is seeking foreign investment to exploit these assets. For example, the Ministry of Mines is looking for international partners to develop 11 natural-gas sites in the northwestern Afghan provinces of Jowzjan and Maimana. 

In addition, China has been expanding its access to energy assets in the surrounding countries of Central Asia. The security of these resources, and the land-based transportation routes linking them to China, depends in part on the situation in Afghanistan. In December 2009, China opened a major energy pipeline that transports natural gas from Turkmenistan through Uzbekistan and Kazakhstan through areas sufficiently close to Afghanistan that the pipeline could be attacked by guerrillas operating from Afghan territory. While in Beijing as part of Hamid Karzai’s March 2010 state visit, Afghan Foreign Minister Zalmai Rassoul echoed Karzai’s message by telling China Daily that Afghanistan would welcome additional Chinese investments in its natural gas and iron ore sectors, and would take steps to ensure better protection of Chinese nationals and firms in his country.

In this regard, the success of the Chinese venture at Aynak could serve as a catalyst for additional foreign investment, including in the former state-owned companies that are now being privatized by the Afghan government. Afghanistan is thought to have unexplored or underdeveloped reserves of oil, natural gas, iron, gold, copper, and other raw materials that China imports in abundance. 

By acquiring these goods from Afghanistan, China could further diversify its source of imports away from more distant world regions, whose products are transported to China along lengthy ocean shipping routes vulnerable to pirates, foreign navies, and other interruptions. Importing materials from Afghanistan also allows Beijing to pursue a more geographically balanced process of internal economic development. China’s western provinces need readily available natural resources to develop. Trade with Afghanistan would accelerate the economic growth of the sensitive Xinjiang region, which borders Afghanistan as well as Pakistan and the Central Asian republics, two other regions that have received considerable Chinese direct investment in recent years. 

Afghan officials see foreign trade and investment as perhaps their best means for reducing their dependence on international assistance, which currently covers 90 percent of the Afghan government’s budgetary expenditures. The government is rapidly expanding the size of the national army and police as well as trying to expand public services, but the government already runs a massive deficit that requires large foreign subsidies to cover. Expectations are that these subventions will be needed for decades even after the foreign troops leave the country, but doubts persist about how long this will continue.

Still, many Afghans suspect that not all the hoped for economic benefits from the Aynak project will materialize, and they also worry about the fate of the investment and locality after the lease expires. Chinese and Afghan officials are discussing constructing a railroad directly connecting their countries, which could increase the flow of goods even further. Despite these Afghan concerns and Chinese security worries, Chinese and other foreign investors aim to acquire additional natural resources in Afghanistan if the security situation permits. 

So far, China’s development of the Aynak mine and associated infrastructure has proceeded at a slow pace following the April 2008 contract signing, presumably due to concerns about the security of the investment and safety of the Chinese nationals due to the surrounding Taliban violence. 

American troops don’t protect the Aynak copper mine project directly, but US forces provide general security in Logar Province. The Afghan National Police has positioned 1,500 special recruits to guard the mine, while some 2,000 US soldiers provide general area security in Logar Province, where the mine is located, as well as security for the projected routes for the road and railway, as part of their mission of defending Afghanistan’s critical economic infrastructure. Like other foreign investors, neither Chinese companies nor China’s government will reimburse the United States for attempting to maintain a secure investment climate in Afghanistan. After the deal was signed, Taliban insurgents increased their operations in the area, prompting more than 2,000 troops from the US Army 10th Mountain Division to enter Logar in response. 

All this means that while US and NATO forces protect other foreign investments and critical infrastructure from insurgent attack, China’s prominent and growing economic presence remains unaccompanied by a commitment from Beijing to send Chinese soldiers to Afghanistan to assist in the country’s defence. You’d think that this would place a considerable strain on the Sino-American relationship. So far, though, it hasn’t.

Like Afghan officials, US and NATO officials welcome any legal foreign investment in Afghanistan that generates employment for Afghans outside the narcotics or terrorism industries and that increases the resources available to its beleaguered government. ‘It can be a good thing. As a matter of fact, we encourage all of the international community to take an interest in the economic development of Afghanistan,’ says US State Department spokesman Gordon Duguid. ‘Working with our coalition partners and other interested partners, we are trying to establish a viable market economy in Afghanistan. This is one way to wean people from illicit activities and also to fight the ideology of the terrorists.’

Right now, China’s preferred outcome is a negotiated peace settlement among the Afghan government, the Afghan Taliban, and the other Afghan combatants, supported by Afghanistan’s neighbouring countries and the great powers. These international partners would agree to preserve Afghanistan’s neutrality and collectively contribute to the country’s political development and economic reconstruction. This scenario would establish a more favourable environment for Chinese investment in Afghanistan, reduce some sources of regional terrorism and narcotics trafficking, and facilitate use of Afghanistan’s territory as part of the Afghan-Pakistan-Central Asian ‘silk road’ connecting China’s trade and investment with the rest of Eurasia and Europe beyond.

Until then, China is most likely to assist the counterinsurgency campaigns in Afghanistan by investing in the country’s raw material sector and helping develop the economic infrastructure (especially transportation) to better exploit these natural resources. Since these investments will help divert Afghans away from illicit commercial activities such as opium production provide additional revenues for an Afghan government struggling to sustain its enormous security establishment, whose upkeep costs are more than the size of the annual gross domestic product, this limited Chinese contribution should still be welcomed.