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Central Asia’s Lukewarm Pivot to China

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China Power

Central Asia’s Lukewarm Pivot to China

Central Asian countries are turning to China for funding — but by default, not by preference.

Central Asia’s Lukewarm Pivot to China
Credit: Government of Kazakhstan

With the impending NATO withdrawal from Afghanistan and a slowing Russian economy, there are not many options for Central Asian countries to look for investments and infrastructure construction. Once considered the main investment and security partner for the former Soviet bloc nations, sanctions and low energy prices for the Russian economy have forced Central Asian countries to look elsewhere for economic diversification and security arrangements.

As Russian and American influences in the region slowly begin to wane, China has increasingly stepped up its efforts. However, increased Chinese investment and involvement in the region has been met with much skepticism, a relatively lukewarm reception.

Central Asian countries are well aware of their geostrategic importance to the region, which is reflected in China’s “One Belt One Road” initiative — a policy aimed at large scale economic investment throughout Central Asia to restore the periphery of the former Silk Road. A massive energy behemoth, Central Asia is an attractive investment opportunity for a Chinese economy looking to alleviate excess capacity issues that have slowed Chinese growth. With China facing slowing consumption, empty apartment buildings, and a declining manufacturing sector, Beijing’s “One Belt One Road” is aimed at reigniting Chinese demand and consumption.

The fear emanating from Central Asia is that its new partner is only interested in Central Asia’s natural resources and energy, leaving little room for domestic economic growth and long term development for the region. The Central Asian countries have looked to diversify their economic portfolios in an attempt to not be beholden to the policy will of China; however, these projects have either failed to bear any fruit or simply don’t match the level of investment that China can provide. Simply put, Central Asia does not want to be seen as a pawn in a new “Great Game” between China and Russia.

The Turkmenistan-Afghan- Pakistan- India (TAPI) pipeline has been one measure in the attempt by various Central Asian states to diversify their economic investments, but the project has been met with many delays and security concerns, putting a damper on its potential economic impact for Turkmenistan.

Both Tajikistan and Turkmenistan have looked to increase ties with Iran, and with improving relations with the U.S. and the lifting of various international sanctions against Iran, this appears to be an attractive solution. However, contracts and economic cooperation with Iran have produced only modest results thus far. Iran has doubled its imports of Turkmen gas with potential deals for Turkmenistan to sell electricity to Iran, but in all around 150 Iranian companies operate inside Turkmenistan — a modest number.

Meanwhile, increased investment and economic cooperation between China and Central Asia has recently been met with waves of Sinophobia. Last May, protests lit up across cities in Kazakhstan over new land reforms that stoked worries of foreign investors taking over the country. During the protests, Human Rights Watch estimated that nearly 500 individuals were arrested. The new legislation was aimed at increasing the maximum lease on farm land to 25 years for foreigners, and though the law applies to all foreigners, Chinese citizens became the target of the protests.

Despite rising Sinophobia in Kazakhstan, the country’s economy is still heavily reliant on Chinese investment. Yerlan Karin,  the director of the Kazakhstan Institute for Strategic Studies, a government-run think tank stated, “At the start of 2016, there were 668 Chinese companies working in Kazakhstan — that is a 35 percent increase on 2013.” This matches an investment of more than $10 billion by China in Kazakhstan over a five year period.

Though China has sought to alleviate concerns over Central Asia’s anxieties related to its natural resources and energy sector, China controls upwards of 30 percent of Kazakhstan’s oil sector — highlighting that China’s chief concern and Central Asia’s predominate fear is in fact the region’s energy resources, which are needed to feed Chinese consumption.

In addition to Kazakhstan, as energy analyst John Roberts pointed out, “Turkmenistan is becoming increasingly dependent on China — indeed, it is hard to see what significant sources of income it has apart from those gained from gas exports to China, and loans provided by China.” International Monetary Fund data from 2014 highlights a Turkmenistan highly dependent on China, with exports reaching $8.65 billion in comparison to its second place competitor, Turkey at $587 million.

Tajikistan has become all but too dependent on Chinese investments as Russian influence has waned. Direct investments in Tajikistan by China amounted to $273 million in 2015, roughly 58 percent of the total, with Russian investment dwindling to 7.4 percent. However, this reliance on Chinese investment has created unease and tension in Tajikistan. In 2011, Tajik authorities passed legislation ceding 1 percent of its territory to China for debt relief. Many Tajik citizens were alarmed and upset by the measure. As one resident noted, “Our people don’t have enough land and many have to go to Russia to find work, yet we invite foreigners to work here. It makes no sense.”

There are not many options for Central Asian countries to diversify their economic portfolios, and with a wanting China looking to reignite her economic engines it would be perilous for the region to forego the economic opportunity. With the large influx of Chinese dollars, laborers, and companies, tensions are rising in the region, and at times have erupted into protests as witnessed in Kazakhstan.

Central Asian leaders will need to be transparent with their citizens in any economic contracts between China and the region if they wish to temper rising anxieties — and continue to push for other lucrative contracts and increased bilateral relations with neighboring countries such as Iran. Countries such as Tajikistan, Kyrgyzstan, and Turkmenistan should not abandon projects such as TAPI or CASA-1000, a hydroelectric project designed to export electricity to Pakistan. Central Asia cannot escape China’s economic might and reach, but it can attempt to limit influence by expanding to other growing markets like Pakistan, India, and Iran.