Central
Asia’s Silk Road Rivalries
Russia’s
and China’s separate visions for Central Asia could transform the region’s
political and economic landscape as well as relations between the two Eurasian
giants. To the smaller, embryonic Central Asian nation states, the new
geopolitical realities could offer both economic prosperity as well as
worsening instability and conflict.
Executive Summary
Two
new regional initiatives potentially could transform Central Asia’s political
landscape. China’s Silk Road Economic Belt (SREB), launched by President Xi
Jinping in 2013, offers multi-billion dollar investments in transport and
industry and a vision of free trade across the region. The Russian-led Eurasian
Economic Union (EEU), established in 2015, creates a customs union among former
Soviet states orienting their economies toward Moscow. They have divergent
goals, but Russia and China have committed to cooperate politically and
economically. Their initiatives offer investments and enhanced cooperation in a
region beset by economic and political challenges. Poorly handled, however,
these initiatives could encourage and entrench local behaviour that risks
generating instability and conflict.
[Russia's
and China's] initiatives offer investments and enhanced cooperation in a region
beset by economic and political challenges.
The
SREB aims to open trade routes for China across its vast continental hinterland
while creating a zone of security around its troubled western region of
Xinjiang. It is an umbrella concept rather than a clear set of projects. The
first stage involves multi-billion dollar investments building rail and road
links to Central Asia and across it to Iran, Russia, the Caucasus, Turkey, and
Europe. China aims to reduce physical, technical and political barriers to
trade, in pursuit of its longer-term goal of a free-trade agreement across the
region. Poorer countries, such as Tajikistan and Kyrgyzstan, hope for
investments in agriculture and industry to boost their economies. The plan also
has a strategic and ideological dimension, extending Chinese political clout
and promoting a state-led development model. If successful, it could form the
first step in a new kind of international order in which China plays a leading
role.
Chinese
plans face serious challenges. Political sensitivities are high. While Central
Asian elites welcome an influx of funding, Chinese investors often encounter
popular suspicion and xenophobia. Rumours of land being leased to Chinese
investors sparked protests in Kazakhstan in May 2016. A suicide bomb attack on
the Chinese embassy in Bishkek in August 2016 raised fears in Beijing about
security vulnerabilities. Many investment deals do not benefit the wider
population and are accompanied by accusations of high-level corruption. There
also are environmental concerns as China exports polluting industries into the
region. This combination of nationalism, anger over corruption and
environmental impacts could fuel anti-Chinese – and anti-government – sentiment
in Central Asia.
The
SREB also challenges Russia, which separately has been bolstering its regional
role by building its own institutions. In May 2014, Russia, Belarus and
Kazakhstan, joined in 2015 by Kyrgyzstan and Armenia, set up the EEU, loosely
modelled on the EU. The EEU aims to promote free movement of goods, labour,
services and capital within its borders while imposing tariffs on external
imports. However, the EEU is slow to deliver on its promise of greater economic
integration. Trade among members has fallen since 2015 in terms of both volume
and value, due to the devaluation of the rouble, though it has picked-up
slightly in 2017. There are political limitations, too. Uzbekistan and
Turkmenistan make clear they will not join and likewise reject membership in
the Collective Security Treaty Organization (CSTO), a Russian-led security bloc.
Russia, though, remains a key partner for the Central Asian countries. Its deep
and multi-layered political, social and cultural influence in Central Asia
currently surpasses that of China.
Russia
and China have committed to cooperation between the EEU and the SREB. Moscow
has promoted the notion of “Greater Eurasia”, a nebulous project that would
link China, Russia and Central Asia in a new economic and political bloc, and
sees cooperation with China as intrinsic to this. But fundamental contradictions
loom between the EEU’s inward-looking customs union and China’s push for free
trade across the region and into Europe. Moreover, Central Asian states each
have agendas of their own and overcoming obstacles to regional trade will prove
difficult. Thus, Kazakhstan is keen to maintain strong links with the West to
balance Russian and Chinese involvement while Uzbekistan, despite showing signs
of seeking better relations with its neighbours, still restricts free trade
across its borders.
[These
projects] are unlikely to foster necessary political and institutional reform,
without which Central Asia’s governments will remain brittle, struggling to
manage social change and external challenges.
One
of the more concerning aspects is that these duelling projects focus little on
issues such as rule of law, welfare, health, education or environmental
protection. They also are unlikely to foster necessary political and
institutional reform, without which Central Asia’s governments will remain
brittle, struggling to manage social change and external challenges. For
Western countries, the initiatives are emblematic of their increasing marginalisation
in the region. The European Union (EU), the U.S. and international financial
institutions also may wish to explore ways to engage with both initiatives and
use this to push for good governance, as well as environmental and labour
standards.
Bishkek/Hong
Kong/Brussels, 27 July 2017
I.
Introduction
This
report analyses the significance of the SREB and EEU in terms of their impact
on economic development, political stability and security across the region,
and their possible influence on Central Asia’s complex geopolitics. It is the
second of three reports analysing Central Asia at the crossroads between
powerful economic and political actors and the consequences for regional peace,
security and development as well as the domestic trajectories of each
independent republic. Research was conducted in Moscow, Bishkek, Astana,
Uralsk, Atyrau, Beijing, Shanghai, Hong Kong and London.
II.
China’s Belt and Road Initiative and Silk Road Economic Belt
The
Silk Road Economic Belt (SREB) is the largest terrestrial component of China’s
Belt and Road Initiative (BRI), a hugely ambitious program to invest as much as
$1 trillion in new transport and trade infrastructure between China and the
rest of the world.[fn]The initiative previously was referred to as One Belt,
One Road (OBOR), but political sensitivities encouraged a change in name. It
was formally incorporated into China’s national economic development strategy
through the “Decision of the Central Committee of the Communist Party of China
on Some Major Issues Concerning Comprehensively Deepening the Reform”, adopted
at the Third Plenary Session of the 18th Central Committee, 12 November 2013.
It stated: “We will set up development-oriented financial institutions,
accelerate the construction of infrastructure connecting China with
neighbouring countries and regions, and work hard to build a Silk Road Economic
Belt and a Maritime Silk Road, so as to form a new pattern of all-round
opening”. More than a year later, the initiative was outlined in greater detail
through a white paper on “Vision and Actions on Jointly Building Silk Road
Economic Belt and 21st-Century Maritime Silk Road”, issued by the National
Development and Reform Commission, Ministry of Foreign Affairs, and Ministry of
Commerce, 28 March 2015. For figures, see “Commentary: From B&R forum to
BRICS summit, China rises to global challenges with win-win solutions”, Xinhua,
22 May 2015 and “国开行建立900余”一带一路”项目库涉资金近万亿美元” [“China Development Bank
establishes library of 900 ‘Belt and Road’ projects, total value approaches $1
Trillion”], Caijing, 28 May 2015. For background to Sino-Central Asian
relations see Crisis Group Asia Report N°244, China’s Central Asia Problem, 27
February 2013.Hide Footnote The late Wu Jianmin – then a
member of the Foreign Policy Advisory Committee of the Foreign Ministry and
Crisis Group board member – claimed that the Belt and Road Initiative was “the
most significant and far-reaching initiative that China ever put forward”.[fn]Wu
Jianmin, “‘One Belt and One Road,’ Far-reaching Initiative”, China-US Focus, 26
March 2015.Hide Footnote The Belt and Road Initiative
involves over 60 countries in two broad arcs: a Maritime Silk Road along
China’s sea routes,[fn]“Vision for Maritime Cooperation under the Belt and Road
Initiative”, National Development and Reform Commission and State Oceanic
Administration, 20 June 2017.Hide Footnote and the
SREB, which aims to improve connectivity on Eurasian land routes to Europe.
Central Asia is vital for its successful development.[fn]For background to
Sino-Central Asian relations see Crisis Group Asia Report N°244, China’s
Central Asia Problem, 27 February 2013. For a Chinese perspective, see China’s
New Neighbourhood Diplomacy: Seeking Stability Through Management and Planning,
CIIS Report No. 9, 14 February 2016. For official views and policy proposals,
see “推进沿边重点地区开发开放步伐构筑推进”一带一路”建设重要支撑” [“Advancing Development and
Opening-up of Key Border Regions, Providing Important Support to the “Belt and
Road”], an interview with representatives of the National Development and
Reform Commission and the Ministry of Commerce, www.ndrc.gov.cn, 11 Jan. 2016;
and “习近平在推进 ‘一带一路’
建设工作座谈会上发表重要讲话 张高丽主持,
新华社”
[“Xi Jinping’s speech at the Belt and Road Work Conference, chaired by Zhang
Gaoli”], Xinhua, 17 August 2016.Hide Footnote
The
Belt and Road Initiative was labelled an “initiative” as it has few concrete
goals or strategies and lacks institutional structure. Chinese ministries,
state-owned enterprises and regional and local authorities seemingly develop
their own linked proposals in response to broad, overarching concepts. As a
result, the Belt and Road Initiative, and the SREB as one of its components,
essentially serves as a new umbrella for separate, existing projects and
investments as well as new initiatives.[fn]Crisis Group Report, China’s Central Asia Problem, op. cit. Many projects and
proposals now subsumed under the Belt and Road Initiative long pre-date the
initiative’s launch. These include China’s internal strategy to develop its
western regions (西部大开发),
the China-Pakistan Economic Corridor and similar
Bangladesh-China-India-Myanmar, China-Mongolia-Russia and China-Indochina
“corridors”. This report focuses on the SREB and does not discuss these other
initiatives.Hide Footnote
China
wants to be the key trading and investment partner for states across the Eurasian
continent and open up new routes for trade with Europe.
In
economic terms, the Belt and Road Initiative aims to boost China’s slowing economy
by developing new markets and generating demand for the country’s overcapacity
in aluminium, steel, construction and other industries.[fn]That said, the Belt
and Road Initiative might not have a major impact on China’s economic slowdown.
David Dollar and others argue that the “contributions that these initiatives
together make to China’s demand are likely to be too small to be macro
economically meaningful”. David Dollar, “China’s rise as a regional and global
power: The AIIB and the ‘one belt, one road’”, Brookings Institution, 15 July
2015.Hide Footnote China wants to be the key trading
and investment partner for states across the Eurasian continent and open up new
routes for trade with Europe. Chinese policymakers hope this will ameliorate
widening economic disparity between the country’s poorer, landlocked western
and interior regions and its more prosperous east coast, thus helping to
maintain social stability.
Geopolitically,
as part of the Belt and Road Initiative, the SREB is key to Xi’s “neighbourhood
diplomacy” geared at improving relations with countries on China’s periphery by
creating public goods such as transport links and power infrastructure. In this
respect, it is a framework for economic statecraft, leveraging China’s
strengths – vast reserves of capital and cheap loans, engineering know-how and
production and construction capacity – to generate political influence and set
a new agenda for globalisation on Chinese terms. As the May 2017 Belt and Road
Forum illustrated, it also is a means of promoting China, both at home and
abroad, as a rejuvenated, agenda-setting power.[fn]China held its first “Belt
and Road Forum for International Cooperation” in Beijing 14-15 May 2017, where
President Xi showcased the initiative to 29 world leaders and senior delegates
from over 100 countries, the UN, IMF and other international agencies, and
pledged further funding for Belt and Road Initiative projects.Hide Footnote
Central
Asia is a testing ground for new ideas in China’s foreign policy.
The
Belt and Road Initiative also has an implicit ideological component. It
represents a de facto challenge to the economic development model promoted by
Western states which emphasises structural and policy reforms and technical
assistance in sectors such as education and health, but largely avoids public
infrastructure. The Chinese government hopes that a state-led, credit-fuelled
program of major investments in infrastructure projects will stimulate regional
economic growth. If the Belt and Road Initiative is successful, some analysts
speculate that it could form the basis for a new kind of international order,
in which China plays a leading role.[fn]Tom Miller, China’s Asian Dream: Empire
Building along the New Silk Road (London, 2017); Nadège Rolland, “China’s
Eurasian Century? Political and Strategic Implications of the Belt and Road
Initiative”, National Bureau of Asian Research, 2017; Chris Devonshire-Ellis,
“China’s New Economic Silk Road: The Great Eurasian Game & The String of
Pearls”, Asia Briefing, 2015; William A. Callahan, “China’s ‘Asia Dream’: The
Belt Road Initiative and the new regional order”, Asian Journal of Comparative
Politics, 2016, pp. 1-18; Lan Shen, “Xi Jinping’s ‘One Belt, One Road’ strategy
is showing the way to a new world order”,South China Morning Post, 13 December
2016.Hide Footnote In this sense, Central Asia is a
testing ground for new ideas in China’s foreign policy.[fn]Raffaello
Pantucci, Sarah Lain, “China’s Eurasian Pivot: The Silk Road Economic
Belt”,Whitehall Papers, 88:1, 16 May 2017; Marcin Kaczmarski, “‘Silk
Globalization’: China’s Vision of International Order”, OSW, October 2016.Hide Footnote
For
this to succeed, funding is essential. China’s National Reform and Development
Commission said in March 2017 that China had invested over $50 billion in
countries along the Belt and Road since 2013 and signed contracts for new
construction projects worth $304.9 billion between 2014 and 2016.[fn]“China’s
investment to Belt and Road countries exceeds $50 bln: official”, Xinhua, 6
March 2017. Vice Minister of Commerce Qian Keming cited the figure on
construction contracts: “SCIO briefing on trade and economic cooperation under
B&R Initiative”, China.org.cn, 11 May 2017.Hide Footnote
Specific figures are more difficult to calculate. In November 2014, President
Xi announced a $40 billion Silk Road Fund (SRF) to be used “to provide
investment and financing support for infrastructure, resources, industrial
cooperation, financial cooperation and other projects in countries along the
Belt and Road”.[fn]“Chronology of China’s Belt and Road Initiative”, Xinhua, 28
March 2015. The SRF was established as a limited liability company in December
2014. Its shareholders include the China Investment Corp, the Export-Import
Bank of China and the China Development Bank. Its first projects have not
specifically targeted the Silk Road.Hide Footnote
At the May 2017 Belt and Road Forum he announced a further 540 billion yuan
($79.4 billion), including 100 billion yuan ($14.7 billion) more for the SRF.[fn]“Full
text: List of deliverables of Belt and Road forum”, Xinhua, 15 May 2017.Hide Footnote By late 2016, the Silk Road Fund
had committed to deals amounting to at least $3.25 billion, although its
initial investments were in Russia, Pakistan and Europe rather than Central
Asia.[fn]Raffaello Pantucci, “China’s development lenders embrace multilateral
co-operation”, China in Central Asia (chinaincentralasia.com), 4 November 2016.Hide Footnote
The
Asian Infrastructure Investment Bank (AIIB), with $100 billion in capital, also
is expected to be a source of finance for the BRI, albeit beginning loans up to
$2 billion in its first year, mostly in conjunction with other multilateral
lenders.[fn]“China’s AIIB seeks to pave new Silk Road with first projects”, Financial
Times, 19 April 2016. By late 2016, AIIB had committed to some $829 million of
deals, of which about $400 million were in Pakistan, and only $27.5 million in
Central Asia.Hide Footnote The Export-Import Bank of
China and the China Development Bank will continue to play the most important
roles in funding BRI projects, particularly for the SREB in Central Asia, using
their established practise of soft loans to governments conditioned on the use
of Chinese contractors.[fn]Crisis Group Report, China’s Central Asia Problem, op. cit. Crisis Group
interviews, Beijing and Hong Kong, March-April 2017. In his book China’s Asian
Dream, Tom Miller reckons that at most China could finance $50 billion to $100
billion in Belt and Road Initiative projects each year. The economist Yukon
Huang assesses that China’s ability to finance its stated ambitions will depend
on its future GDP growth rate. See also James Kynge, “How the Silk Road plans
will be financed”, Financial Times, 9 May 2016; Alicia Garcia Herrero, “The
Belt and Road: Great project as long as one can finance it!”, Natixis, 12 May
2017; “Behind China’s Silk Road vision: cheap funds, heavy debt, growing risk”,
Reuters, 15 May 2017; and Christopher Balding, “Can China afford its Belt and
Road?”, Bloomberg, 17 May 2017.Hide Footnote
A.
The Silk Road Economic Belt Plan
Official
documents highlight the Silk Road Economic Belt’s major goals, including
transport connectivity, unimpeded trade, financial integration and cultural,
educational and touristic exchanges. Beyond its ancient origins, the idea has a
long history in modern Chinese planning. When President Xi launched the SREB in
September 2013 in Astana, he was following in the footsteps of the late Premier
Li Peng, who had called for the construction of a new Silk Road on a 1994 visit
to Kazakhstan.[fn]“Promote Friendship Between Our People and Work Together to
Build a Bright Future – Speech by H. E. Xi Jinping, President of the People’s
Republic of China, at Nazarbayev University”, Ministry of Foreign Affairs of
the PRC, 7 September 2013; “Chinese premier wraps up Central Asian tour”, UPI,
27 April 1994.Hide Footnote Chinese strategists more
recently revived the concept in response to America’s “rebalance” to Asia, as a
Eurasian pivot or “march west” for China, extending the domestic Western
Development Program into a Central Asian sphere where there would be less
competition with the U.S.[fn]Evoking the “heartland” geopolitical theory of
Halford Mackinder, PLA General Liu Yazhou first called for China to “march
west”. Liu Yazhou, “大国策” [“The Grand National Strategy”], 爱思想
[Aisixiang.com], 15 April 2004. Chinese international relations professor and
Crisis Group board member Wang Jisi later elaborated the idea in a much-cited
essay: Wang Jisi, “‘西进’,中国地缘战略的再平衡” (“‘Marching Westwards’, the
Rebalancing of China’s Geostrategy”), Global Times, 17 October 2012. See also
Yun Sun, “March West: China’s Response to the U.S. Rebalancing”, Brookings
Institution, 31 January 2013; Theresa Fallon, “The New Silk Road: Xi Jinping’s
Grand Strategy for Eurasia”, American Foreign Policy Interests, vol. 37, no. 3
(2015), pp. 140-147. The Communist Party began the Western Development Program
(西部大开发)
in 2000, targeting six provinces, five regions and the city of Chongqing with a
policies and investments to stimulate economic growth. See “China’s Campaign to
‘Open up the West’ National, Provincial and Local Perspectives”, The China
Quarterly Special Issues (No. 5), David S. G. Goodman (ed.) (Cambridge, 2004).Hide Footnote
There
are two major strategic goals for the SREB. First, to provide China with
alternative import/export and energy supply routes and lessen its dependence on
strategic shipping lanes in South East Asia. Second, to produce a zone of
stability on both sides of China’s western border.[fn]Crisis Group interviews,
Beijing and Shanghai, March-July 2017; Rolland, “China’s Eurasian Century?”,
op. cit.; Pantucci, Lain, China’s Eurasian Pivot, op. cit.Hide Footnote
China’s
primary security and stability focus in the region – and one which it hopes the
SREB can help address – has been its Xinjiang Uighur Autonomous Region, which
borders eight countries, has fifteen dry ports and is rich in natural
resources, making it a strategically crucial gateway to other markets and
cultures. About 46 per cent of Xinjiang’s 22 million people are Uighurs, a
Muslim people with historical and cultural ties to Central Asia and Turkey.[fn]Xinjiang’s
other main ethnic groups are Han Chinese (39 per cent) and Kazakhs (7 per
cent). “China to pursue ethnic fusion”, Global Times, 7 March 2016.Hide Footnote Long-running tensions between the
Uighurs and Han Chinese have deep and complex roots. They draw on conflicting
historical narratives and are exacerbated by relative remoteness, poverty, low
levels of education, linguistic and cultural differences and ethnic and
religious discrimination. Massive state-financed investment and migration from
other provinces have fostered rapid GDP growth in Xinjiang, but also widened
economic disparities along ethnic lines and stoked Uighur anxiety about
cultural assimilation and calls for greater autonomy.[fn]Crisis Group
interviews, February-June 2017, Beijing and Hong Kong. Discussion of
inter-ethnic unrest in Xinjiang is politically sensitive in China and opinions
on causes and cures vary. See for example, Anthony Howell and C. Cindy Fan,
“Migration and Inequality in Xinjiang: A Survey of Han and Uyghur Migrants in
Urumqi”, Eurasian Geography and Economics, vol. 52, no. 1 (2011), pp. 119–139;
Sean Roberts, “Imaginary Terrorism? The Global War on Terror and the Narrative
of the Uyghur Terrorist Threat”, PONARS Eurasia Working Paper, March 2012;
James Leibold, “Carrot and stick tactics fail to calm China’s ethnic
antagonism”, East Asia Forum (www.eastasiaforum.org), 28 April 2015; “China’s
Great Game: New frontier, old foes”, Financial Times, 13 October 2015.Hide Footnote
Many
smaller-scale instances of violence and unrest in Xinjiang appear to be the
result of criminality, corruption, prejudice and other local disputes. More
serious ones, such as the 2009 riots in the regional capital Urumqi, in which
at least 197 people died, draw on wider socio-political grievances.[fn]Colin
Mackerras, “Causes and Ramifications of the Xinjiang July 2009 Disturbances”, Sociology
Study, July 2012, vol. 2, no. 7, pp. 496-510.Hide Footnote
Some significant attacks involving Uighurs in Xinjiang, Beijing (2013) and Kunming
(2014) have featured terrorist tactics and appear to have been organised by
politically-motivated groups and individuals, at least some inspired by radical
Islamic ideology or separatism. Chinese counter-terrorism experts worry about
the inflow of terrorist tactics and fundamentalist Islam from the Middle East
and Central Asia, and point to claims of responsibility from the Turkestan
Islamic Party, calls to action from foreign terrorist groups and evidence of
Uighurs fighting with the Islamic State in Iraq and Syria.
The
response from the central and regional governments has included stepped-up
investment in the local economy, social programs, affirmative action ethnic
policies, restrictions on religious practices and attire as well as a sweeping
“strike-hard” counter-terrorism program with pervasive surveillance and
extensive police and paramilitary deployments. Results have been mixed and some
analysts worry that short-term stability only masks festering tensions. China
uses drones, barbed wire and surveillance cameras to protect Xinjiang’s borders
and is calling for greater border security cooperation with the province’s
neighbours.[fn]Crisis Group interviews, 2016 and 2017, Beijing and Hong Kong.
“China moves to calm restive Xinjiang region, The New York Times, 30 May 2014;
Gabe Collins, “Beijing’s Xinjiang policy: Striking too hard?”, The Diplomat, 23
January 2015; “Crackdown breeds Uighur resentment of China’s deserving Han
heroes”, Financial Times, 16 October 2015; Michael Clarke, “Does China have
itself to blame for the trans-nationalisation of Uyghur terrorism?”, East Asia
Forum (www.eastasiaforum.org), 30 March 2017.Hide Footnote
The
SREB’s main domestic impact on Xinjiang so far has been to pump GDP growth to
high levels through state-driven fixed asset investment, most of which was
already in the pipeline. To date, it has led neither to an increase in trade
volumes between Xinjiang and Central Asia nor to an increase in Xinjiang’s
share of trade.[fn]Raffaello Pantucci and Anna Sophia Young, “Xinjiang trade
raises doubts over China’s ‘Belt and Road’ plan”, Financial Times Beyond BRICS
blog (blogs.ft.com), 10 August 2016; “Security clampdown in China’s west exacts
toll on businesses”, Reuters, 28 June 2017.Hide Footnote
Over time, to the extent the transportation infrastructure, logistics hubs and
special zones comprising this “Belt” prove to be economically viable, they may
increase trade and investment and create opportunities, particularly for larger
companies and state-run entities such as the Xinjiang Production and
Construction Corps.
However,
the initiative’s influence on some of the roots of discontent – eg inequality
and political tensions – is likely to be limited unless its “hard”
infrastructure projects are combined with greater “soft” efforts such as
addressing grievances and ethno-religious differences with greater sensitivity,
more nuanced security policies and more programs to foster local community
participation in trade, for example through training in business skills and
seed funding for small enterprises.[fn]Crisis Group interviews with Chinese and
Western analysts, Beijing and Hong Kong, 2016 and 2017.Hide Footnote
The
Silk Road Economic Belt (SREB) offers an alternative framework for China to
expand its economic influence.
In
support of Beijing’s objectives for Xinjiang, the SREB bolsters China’s role in
the Shanghai Cooperation Organisation (SCO), which includes four of the five
Central Asian republics along with Russia, China and, since June 2017, India
and Pakistan, and focuses on security and counter-terrorism. With its
headquarters in Beijing, the SCO also serves to burnish China’s image and
extend its regional reach, but its utility has limits.[fn]Andrew Scobell, Ely
Ratner and Michael Beckley, China’s Strategy Toward South and Central Asia: An
Empty Fortress, (Santa Monica, 2014).Hide Footnote
While Beijing has hoped to develop the SCO into an economic actor with a free
trade agreement, Russia has objected; the SREB offers an alternative framework
for China to expand its economic influence.[fn]Crisis Group Report, China’s Central Asia Problem, op. cit., p. 10.Hide Footnote
In
Central Asia, the main focus is to improve transport and energy infrastructure
along two broad transport corridors that would drive economic cooperation
through connectivity.[fn]Gao Bai, “The Railroad and Land-Power Strategy:
Historical Lessons Learned for the ‘Silk Road Economic Belt’ Strategy”, China
International Strategy Review 2015, Peking University, 2016, pp. 202-231.
China’s National Development and Reform Commission estimates that by 2020 there
will be 5,000 cargo trains running annually between China and Europe. “5,000
China-Europe cargo trains expected by 2020”, Xinhua, 18 October 2016.Hide Footnote The New Eurasia Land Bridge
Economic Corridor, linking China with Europe via Kazakhstan and Russia, builds
on existing rail and road infrastructure, but Russia has been slow to develop
new transport capacity. New initiatives include a high-speed rail link in
Russia that cuts journey times between Moscow and Kazan from twelve to three
and a half hours. Funded and built by China, the plan is to expand it to form a
high-speed route from Moscow to Beijing.[fn]Shen Qing, “News Analysis: China
high-speed rail makes tracks overseas”, Xinhua, 19 June 2015.Hide Footnote
China
places more emphasis on developing a second route, the China-Central Asia-West
Asia Economic Corridor, which links Xinjiang with Kyrgyzstan, Tajikistan,
Kazakhstan, Uzbekistan and Turkmenistan, bypassing Russia. Within this route, a
northern spur is most developed, building railways from a new trade terminal at
Khorgos on the Chinese-Kazakh frontier across to the Kazakh port of Aktau on
the Caspian.[fn]John C.K. Daly, “China and Kazakhstan to Construct a
Trans-Kazakhstan Railway Line from Khorgos to Aktau”, Eurasia Daily Monitor, vol.
12, no. 94, 20 May 2015; Summer Zhen, “China’s Silk Road strategy takes shape
in Khorgos”, South China Morning Post, 18 October 2015.Hide Footnote
From Aktau, shipping offers transport across the Caspian to Azerbaijan and Georgia,
and a link to the new Baku-Tbilisi-Kars railway. Heading south from Aktau, a
new railway has opened between Kazakhstan, Turkmenistan and Iran. The first
trains between China and Iran began operations in February 2016.[fn]Najmeh
Bozorgmehr, “First freight trains from China arrive in Tehran”, Financial Times,
9 May 2016.Hide Footnote In September 2016 the first
ever train from China to Afghanistan arrived in Hairaton, having travelled
twelve days from Nantong.[fn]“First cargo train from China arrives in N. Afghan
port”, Xinhua, 7 September 2016.Hide Footnote
Kazakhstan
is seeking to link transit routes to new special economic zones to maximise
local impact.
Not
all these new routes will be commercially viable. They save significant time
over sea routes for high-value, low volume goods, but are much more expensive
for trade with Europe.[fn]Typical trucking and shipping routes from Chinese
industrial centres can take up to 35 days to Europe, whereas rail links reduce
that to eighteen-twenty days, or less. A container sent by rail can cost
$3,500-$5,000 against $2,000 by sea. Raghu Dayal, “Building an Interconnected
Belt”, Railway Gazette International, vol. 172, N°5, 2016, pp. 40-43; Tom
Holland, “Puffing across the ‘One Belt, One Road’ rail route to nowhere”, South
China Morning Post, 1 May 2017.Hide Footnote Kazakhstan
is seeking to link transit routes to new special economic zones to maximise
local impact. The Khorgos-East Gate Special Economic Zone and dry port,
announced with much fanfare on 2 July 2014 by President Nursultan Nazarbayev,
is supposed “to spur economic growth across the whole of Eurasia”.[fn]“Kazakhstan,
China: Close neighbours that build mutually beneficial ties”, The Astana Times,
5 May 2015.Hide Footnote
Progress
has been slow, with development hampered by limited consumer demand from
Kazakhstan, but some observers said the dry port may be “turning a corner”: in
May 2017, deep-pocketed China COSCO Shipping Corporation and Jiangsu
Lianyungang Port Co purchased a combined 49 per cent stake in the dry port on
the Kazakh side of the border from the national railway company, and during a
June visit by President Xi to Astana, $8 billion in business deals were signed
and the governments pledged to work on aligning the Belt with Kazakhstan’s
“Bright Path” economic policy.[fn]Wade Shepard, “Khorgos: The New Silk Road’s
Central Station Comes To Life”, Forbes, 20 February 2017; “Why Kazakhstan is
building a “New Dubai” on the Chinese border”, Forbes, 28 February 2016;
“Chinese companies buy stake in dry port in Kazakhstan”, Xinhua, 15 May 2017;
“China, Kazakhstan sign cooperation deals worth over 8 bln USD”, Xinhua, 10
June 2017.Hide Footnote As the number of train
services and usage both rise, costs per container are falling, while customs
procedures at the Kazakh border have become much faster, said one Kazakh
Railways executive. The different rail gauges between countries still
necessitate changes of bogies, but block trains avoid this delay by
transferring cargo in standard containers, which is less time-consuming.[fn]Crisis
Group interview, Kazakhstan Railways Executive, Singapore, July 2017. China
uses a 1,435 mm track gauge, while Kazakhstan’s is 1,520 mm. Without Chinese
subsidies, block train costs would be much higher. “Case Studies on Railway
Border Crossing Points: I. Kazakhstan / People’s Republic of China (PRC)”,
CAREC Program, 2016.Hide Footnote
Other
routes are transforming internal travel. In June 2016, President Xi Jinping and
then Uzbek President Islam Karimov inaugurated a new $1.6 billion rail link
between the Ferghana valley and Tashkent, including the 19.2km Qamchiq Tunnel,
the longest in the region, constructed by the China Railway Tunnel Group. This
route forms part of a planned rail route through southern Kyrgyzstan to western
China, which remains in negotiation.[fn]“Chinese, Uzbek leaders hail
inauguration of Central Asia’s longest railway tunnel”, Xinhua, 22 June 2016.Hide Footnote The old railway involved travel
through Tajikistan’s territory, which created constant problems for passengers
at borders, owing to difficult relations between the two countries.[fn]“Two
presidents open Angren-Pap railway”, Railway Gazette, 2 July 2016.Hide Footnote The project is an example of
collaboration between development banks with World Bank ($195 million) and
Eximbank funding ($350 million).[fn]“7.6 Million People in Uzbekistan Will
Benefit from Better Inter-regional Accessibility by Railway Link”, press
release, The World Bank, 14 February 2015.Hide Footnote
These
internal transport routes may eventually form the basis of a new cross-regional
network. Tajikistan is also developing internal rail and road routes with
Chinese support. However, cross-border routes, essential to the success of the
SREB, are much more difficult to accomplish. A route from Kashgar through Osh
in Kyrgyzstan and on to Uzbekistan ran into difficulties in Kyrgyzstan, which
lobbied China to build a north-south route instead. The Kyrgyz-Uzbek and
Tajik-Uzbek borders remain cumbersome for private trade and travel, though
improvements on the Kyrgyz-Uzbek border have been made.[fn]Crisis Group Europe
and Central Asia Report N°242, Uzbekistan: The Hundred Days, 15 March 2017.Hide Footnote China refurbished road links
between western China and southern Kyrgyzstan, which are now used by trucks
bound for Tajikistan and Afghanistan. Routes involving Afghanistan are the most
challenging: a Tajikistan-Afghanistan-Turkmenistan (TAT) railway project faces
numerous security and political challenges.
Alongside
new railways, China is focused on pipeline construction to lessen its reliance
on Middle Eastern energy. According to Kazakh expert Konstantin Syroezhkin, in
2012 China controlled some 25 per cent of Kazakhstan’s oil production.[fn]Konstantin
Syroezhkin, “China’s Presence in the Energy Sector of Central Asia”, Central
Asia and the Caucasus, vol.13, no.1, 2012, pp. 20-43.Hide Footnote
The Kazakh-China oil pipeline, completed in 2005, is designed to carry oil from
Kazakhstan’s offshore Kashagan project. The China-Central Asia pipeline is the
main export route for Turkmen gas, leaving it heavily dependent on its partners
in Beijing. A further “D” branch of this pipeline is delayed.
Chinese
economic activity is not only about connectivity and trade but also about
investment in industry. In Kyrgyzstan a Chinese-run cement plant is operating
in Aravan, with others announced for Issyk-Kul and Osh.[fn]Construction of the
largest Chinese cement plant in Kyrgyzstan was suspended in July 2015 due to
its close location to the Datka-Kemin power line. A plant in Aravan is
operating and one more is planned there. Tatyana Kudryavtseva, “Премьер-министр
КР распорядился остановить работу цементного завода вблизи подстанции «Кемин»”
[“Prime minister of the Kyrgyz Republic ordered to suspend the work of the
cement plant close to the ‘Kemin’ substation”], 24.kg, 20 July 2015; Erlan
Turgunbayev, “В Ошской области строится цементный завод стоимостью в 10 млн
долларов” [“Cement plant worth $10 million is being built in Osh province”],
Kabar, 7 December 2015. “В Араванском районе цементный завод в сутки выпускает
800-1000 тонн цемента” [“Cement plant in Aravan district produces around
800-1000 tons of cement a day”], Turmush – AKI press, 31 August 2015. For more
on recent China-Kyrgyz proposals, see “中华人民共和国政府和吉尔吉斯共和国政府联合公报” [“Joint Communiqué of the
Government of the People’s Republic of China and the Government of the Kyrgyz
Republic”], 3 November 2016.Hide Footnote In
Tajikistan, Chinese investors established several new cement plants and
production increased fivefold between 2013 and 2015.[fn]Dirk van der Kley,
“China shifts polluting cement to Tajikistan”, chinadialogue.net, 8 August
2016.Hide Footnote The power sector is another
significant area of investment. A Chinese company, Tebian Electricity Apparatus
(TBEA), completed the $350 million reconstruction of the Dushanbe power plant
in December 2016 and is refurbishing the Bishkek power and heating plant. In
2015, TBEA also completed a $390 million electricity transmission line between
north and south Kyrgyzstan, which avoids the need to transit Uzbek territory.[fn]“Construction
of Datka-Kemin 500 kV transmission line completes in Kyrgyzstan”, Kabar, 21
August 2015.Hide Footnote
B.
Challenges on the Silk Road
These
infrastructure projects and business investments have the potential to
transform Central Asia and revive links to Iran, the Middle East, the Caucasus
and Eastern Europe. They offer improved regional ties and promise major
economic boosts. However, they also face serious problems and risks.[fn]Chinese
analysts are beginning to assess such risks, notably in the “一带一路”能源资源投资政治风险评估报告” [“Belt and Road Energy Resource
Investment Political Risk Analysis Report”], Centre for Energy and Resource
Strategic Research, Renmin University, eg 11th ed., January 2017.Hide Footnote
1.
Anti-Chinese sentiment
An
official Chinese White Paper on the SREB emphasises its collaborative nature,
designed to coordinate with existing “multilateral cooperation mechanisms”,
arguing it should be “jointly built through consultation to meet the interests
of all”.[fn]“Vision and Actions on Jointly Building Silk Road Economic Belt and
21st-Century Maritime Silk Road”, National Development and Reform Commission,
Ministry of Foreign Affairs, and Ministry of Commerce, 28 March 2015.Hide Footnote In so doing, China seeks to allay
local suspicion of its increasing influence and hopes the SREB will improve
attitudes toward China among Central Asian states; in particular, it proposes
cooperation with existing national plans where possible. While the EEU involves
a complex path to membership, an intrusive regulatory regime and a
supranational body in Moscow, the SREB imposes no supranational governance
structures nor rules on participants. Tellingly, a goal of the SREB and China’s
new “periphery diplomacy” is to promote pro-Chinese attitudes in its immediate
neighbourhood.[fn]At a Work Forum on periphery diplomacy in 2013, Xi called for
diplomacy that would “warm the hearts of others so that neighbouring countries
will become even friendlier”. Timothy R. Heath, “Diplomacy Work Forum: Xi Steps
up Efforts to Shape a China-Centered Regional Order”, China Brief, the
Jamestown Foundation, vol.13, no. 22 (2013), p. 6. A meeting of Chinese Foreign
Minister Wang Yi with Kazakh Foreign Minister Erlan Idrissov in Kazakhstan in
June 2016 gave equal billing to Kazakhstan’s national Nurly Zhol development
plan and the SREB proposal. “Chinese, Kazakh FMs vow to strengthen ties”,
Xinhua, 22 May 2016. See Aziz Burkhanov and Yu-Wen Chen, “Kazakh Perspective on
China, the Chinese, and Chinese Migration”, Ethnic and Racial Studies Review,
vol. 39, no. 12 (2016) p. 2,139.Hide Footnote
Anti-Chinese
sentiment is widespread at all levels of society in each Central Asian state
and racist stereotypes often are aired publicly.
But
this will be an uphill task. Anti-Chinese sentiment is widespread at all levels
of society in each Central Asian state and racist stereotypes often are aired
publicly.[fn]“В Астане прошел митинг против браков казахстанских девушек и
китайских женихов” [“A protest against marriages of Kazakh girls and Chinese
grooms took place in Astana”], Zakon.kz, 11 January 2017.Hide Footnote
Privately, some local politicians frame it as part of broader xenophobic
tendencies but posit increased cooperation with China as particularly fraught
for historical reasons.[fn]Crisis Group interview, Kyrgyz politician, Bishkek,
September 2014.Hide Footnote While elites are more
comfortable about forging closer relations with China, and while they find the
prospect of major investment with few political conditions attached extremely
attractive, nationalism and economic resentments create a combustible
environment which neither Central Asia’s governments nor Beijing should ignore.
“The rise of Sinophilia and Sinophobia will impact the political, geostrategic,
and cultural situation in the region, working either to speed up or to slow
down Chinese expansion in it”.[fn]Sebastien Peyrouse, “Discussing China:
Sinophilia and Sinophobia in Central Asia”, Journal of Eurasian Studies, vol.
7, no. 1 (2016), pp. 14-23; see also Raffaello Pantucci, “Sinophobia: A
potential knot in the Silk Road”, China in Central Asia
(chinaincentralasia.com), 14 June 2015.Hide Footnote
These
negative attitudes are particularly pronounced in Kazakhstan and Kyrgyzstan.
According to opinion polls, more Kyrgyz citizens see China as an economic
threat than a partner; they also view Russia, Kazakhstan, Turkey and the EU as
more important economic partners.[fn]“IRI’s Center for Insights Poll: Despite
Corruption and Slow Economy, Citizens Feel that Kyrgyzstan is Moving in the
Right Direction”, International Republican Institute (IRI), 9 May 2016. A
report concluded that “negative stereotypes of China and the Chinese, as well
as Sinophobia, are pervasive in private Kazakh language newspapers”. Aziz
Burkhanov and Yu-Wen Chen, “Kazakh Perspective”, op. cit.Hide Footnote
Such perceptions are especially pronounced among Kazakh nationalist activists
for whom preoccupation with China often merges with economic resentment.[fn]“Досым
Сатпаев: Проглотит ли китайский удав евразийскогокролика” [“Dosym Satpayev:
Will the Chinese boa constrictor swallow the Eurasian rabbit?”], Ratel.kz, 30
May 2016.Hide Footnote Initiatives such as relaxing
the visa regime for Chinese visitors were sharply criticised by nationalist
voices.[fn]Zhas Alash, a nationalist paper, wrote in 2014 that “China’s
proposal to adopt visa-free travels for tourists is hence unacceptable for us.
It is a way for them to conquer us without a war”. “What if the Chinese Came”, Zhas
Alash, 9 September 2014, cited in Aziz Burkhanov and Yu-Wen Chen, “Kazakh
Perspective”, op. cit.Hide Footnote
In
Kyrgyzstan, anti-Chinese sentiment often fuels protests or is used by political
leaders to mobilise support against Chinese companies. In August 2011, three
Chinese miners were attacked at the Solton-Sary gold mine, in Naryn province.
Locals claimed that the Chinese ignored environmental safeguards and treated
Kyrgyz workers poorly. In September 2012, locals in Jalalabad attacked a camp
for Chinese road builders near the Charaat gold mine, complaining about the
impact of truck traffic on local roads[fn]Crisis Group Report, China’s Central Asia Problem, op. cit.; Arstan Aalyev, “Когда
президенту становится стыдно” [“When the president is embarrassed”], 24.kg, 14
September 2012.Hide Footnote .In October 2012, protestors
shut down operations at the Chinese-run Taldy-Bulak Levoberezhny gold field
after reports of a brawl between Chinese and Kyrgyz workers.[fn]Crisis Group
Report, China’s Central Asia Problem, op. cit.; Dmitry Denisenko,
“Китайцев обвиняют в избиении рабочих-кыргызстанцев на Талды-Булаке
Левобережном” [“Chinese are accused for beating up the Kyrgyz workers at
Taldy-Bulak Levoberezhny”], Vecherniy Bishkek, 22 October 2012.Hide Footnote In 2015, a fight broke out
between local and Chinese workers at a Chinese-owned copper mine in Kazakhstan.[fn]Assel
Satubaldina, Tatyana Kuzmina and Assemgul Kassenova, “145-men fight between
Chinese and Kazakh miners in Kazakhstan, 65 injured”, TengriNews, 10 July 2015.Hide Footnote
The
tendency among Chinese companies to hire Chinese rather than local workers
causes tensions.
These
conflicts also occur with other foreign companies, but Chinese businesses
appear to be specially targeted. In particular, the tendency among Chinese
companies to hire Chinese rather than local workers causes tensions. Chinese
workers often are subject to harassment and many Chinese companies advise their
employees to remain isolated from the communities in which they work.[fn]Raffaello
Pantucci, “Sinophobia: A potential knot in the Silk Road”, op. cit.Hide Footnote This deepens the sense of
mistrust on both sides and reinforces the idea that China’s practises and
motives in Central Asia are opaque and self-serving. As a result, there is a
slow shift toward using more local labour.[fn]Dirk van der Kley, “Chinese Companies
Increasingly Employ Central Asians”, China in Central Asia
(chinaincentralasia.com), 27 December 2016. For example, the Dzhunda plant in
Kara-Balta claimed to be working toward 90 per cent local employment. As of
March 2016, 586 out of 873 staff were Kyrgyz citizens; management complained
that finding trained local staff was difficult. “Завод «Джунда» – три года
успешной работы!”[“‘Dzhunda’ factory – three years of successful work!”],
Knews, 7 July 2016.Hide Footnote These positions
are not always in skilled or highly paid roles, but as more Central Asian
citizens train in China and learn Chinese, more managerial positions are also
opening to non-Chinese staff.
Agricultural
land is in short supply in much of Central Asia and so land distribution also
can spark conflicts. Specifically, nationalists fear that land will be sold to
Chinese investors. In 2010, opposition activists held a protest in Almaty over
plans to lease land to Chinese investors.[fn]Rayhan Demytrie, “Kazakhs protest
against China farmland lease”, BBC, 30 January 2010.Hide Footnote
In April 2016, major protests broke out in the Kazakh cities of Atyrau, Aktobe
and Semey after the law was amended to allow the lease of land for 25 years.[fn]“Kazakhstan’s
Protests Postponed – But for How Long?”, Crisis Group blog, 12 May 2016.Hide Footnote Though ostensibly about land
reform, the protests became a vehicle for airing other grievances including
fears of an influx of Chinese migrants and distrust of Chinese companies,
particularly their labour and environmental practices.[fn]Richard Ghiasy and
Jiayi Zhou, “The Silk Road Economic Belt: Considering security implications and
EU–China cooperation prospects”, SIPRI, 2017; Alexander Cooley, “The Emerging
Political Economy of OBOR”, Center for Strategic and International Studies,
October 2016. Chinese scholar Li Lifan cites one poll indicating 40 per cent of
Central Asians believe that there are negative economic and ecological
consequences to Chinese investment. “The Challenges Facing Russian-Chinese
Efforts to ‘Dock’ the Eurasian Economic Union (EEU) and One Belt, One Road
(OBOR)”, Russian Analytical Digest, no. 183, 3 May 2016.Hide Footnote
They led to the resignation of the agriculture minister and President
Nazarbayev delayed implementation of the new law. Nevertheless, Kazakh
officials announced proposed agricultural deals with Chinese investors worth
nearly $2 billion in May 2016.[fn]“China plans to invest $1.9 bln in Kazakh
agriculture”, Financial Times, 16 May 2016.Hide Footnote
Chinese
policymakers are accustomed to dealing with small groups of ruling elites and
tend to discount the importance of public opinion. As one scholar put it, “most
of the people in Central Asia who have strong negative sentiments against China
are not powerful, while those who have power want to work with China”.[fn]Crisis
Group interview with Chinese scholar, Beijing, March 2017.Hide Footnote
But as the experience of some Chinese enterprises in Sri Lanka and Myanmar has
illustrated, such thinking can be a recipe for further discontent and cancelled
or delayed projects.[fn]Crisis Group Asia Reports N°231, Myanmar: The Politics of Economic Reform, 27 July 2012; N°214,
Myanmar: A New Peace Initiative, 30 November 2011; and N°272, bSri Lanka Between Elections, 12 August 2015. “China asks Sri
Lanka to protect interests of investors over suspended port project”, Xinhua, 8
March 2015; “Sri Lanka intensifies scrutiny of Chinese projects”, Reuters, 3
April 2015.Hide Footnote
2.
Corruption and governance
Unsurprisingly,
neither the SREB nor the EEU includes safeguards against corruption or
emphasises improved rule of law or governance. Although China stresses its
commitment to international governance standards in its lending through
institutions such as the Asian Infrastructure Investment Bank (AIIB),
historically there have been frequent reports of high-level corruption
surrounding Chinese investments in Central Asia, including bribe payments to
senior officials.[fn]Crisis Group Report, China’s Central Asia Problem, op. cit. One of the targets of
recent corruption purges in China has been China National Petroleum Corporation
(CNPC), including its officials who worked in Kazakhstan. “Special Report:
Inside Xi Jinping’s purge of China’s oil mandarins”, Reuters, 25 July 2014. In
2016, Kyrgyzstan’s then Prime Minister Temir Sariev resigned amid accusation of
corruption with a Chinese road building company. Raffaello Pantucci, “China’s
place in Central Asia”, chinaincentalasia.com, 1 July 2016.Hide Footnote
Chinese investors often invest in corruption-prone sectors such as mining,
where state licences are acquired illicitly only to be resold to other bidders.
In September 2016, the head of Kazakhstan’s Khorgos International Centre of
Cross-Border Cooperation with China was reportedly arrested on suspicion of taking
a million-dollar bribe.[fn]“Kazakhstan: The Head of Free Trade Zone Detained in
US$ 1 Million Bribe Case”, Organized Crime and Corruption Reporting Project, 9
September 2016.Hide Footnote The head of the Chinese
Chamber of Commerce in Kyrgyzstan admitted that “some Chinese investors have
also joined in these dirty dealings”.[fn]Li Deming, “Kyrgyzstan still a mine
field for investors”, Global Times, 28 October 2012.Hide Footnote
Chinese companies, like other investors, also face problems in navigating
complex and corrupt bureaucratic systems.[fn]Crisis Group interview, Western
diplomat, Astana, June 2016.Hide Footnote
Part
of the problem is the lack of transparency surrounding many deals, in which
companies are selected without competitive tenders. China Eximbank and China
Development Bank often provide soft loans to governments which are used to pay
Chinese companies to carry out infrastructure projects. For example, a $385
million loan to the Kyrgyz government in 2013 financed work by Tebian
Electricity Apparatus (TBEA) to refurbish the Bishkek power plant. The process
caused controversy among Kyrgyz parliamentarians who were told that China’s
Eximbank dictated the choice. According to Electric Stations Director General
Salaydin Avazov: “If we had money for reconstruction, we would have held a
tender. And since there is no money, we have agreed to the terms of Eximbank”.[fn]Yulia
Kostenko, “Модернизация ТЭЦ Бишкека: ошибочка вышла” [“Modernisation of Bishkek
heating and power plant: making gross mistake”], 24.kg, 23 January 2014.Hide Footnote While China and Central Asian
governments defend no-tender procurement as more efficient and effective given
unreliable information about different companies, it also provides scope for
mismanagement and corruption.[fn]Najia Badykova, “The Chinese One Belt One Road
Initiative Could be Doomed without Market Reforms,” The Central Asia-Caucasus
Analyst, 27 June 2017; Sarah Lain, “China’s Silk Road in Central Asia:
transformative or exploitative?”, Financial Times, 27 April 2016; Alexander
Cooley, “Emerging Political Economy”, op. cit.; Ryskeldi Satke and Nicolás de
Pedro, “China must avoid associating with corrupt nations in Belt and Road
plan”, South China Morning Post, 14 May 2017.Hide Footnote
Poor
governance and corruption likewise encourage lack of respect for environmental
concerns, which in turn can be seized upon by activists to organise protests.
In 2012, protests occurred in Aravan, Kyrgyzstan, after local residents
complained about potential environmental damage from the Chinese-run cement
plant.[fn]“Более 50% рабочей силы Араванского цементного завода составляют
местные жители, – ОСОО «Южный комбинат строительных материалов»” [“More than 50
per cent of the workforce in Aravan cement plant are locals – ‘Southern Factory
of construction materials’ LLC.”], Turmush – AKIpress, 20 September 2012.Hide Footnote A $300 million Chinese-run
refinery in Kara-Balta was forced to suspend operations temporarily after local
demonstrations against pollution.[fn]“Приостановка работы НПЗ в Кара-Балте
связана с экологическими проблемами – минэкономики” [“Ministry of Economy:
Suspension of work of the oil refinery plant in Kara-Balta is related to
environmental problems”], KyrTAG, 18 February 2014.Hide Footnote
Activists in Kara-Balta said residents living close to the refinery were not
able to open their windows due to a heavy thick industrial smell and pollution.
In 2015, one resident told Crisis Group: “We all now have health problems
because of the emissions and pollution that is produced by the refinery. Every
month, I have to visit doctors and show them my children. The medical costs
grow to thousands of soms every month, and no one helps us”.[fn]Crisis Group
interviews, Kara-Balta, Kyrgyzstan, February 2015.Hide Footnote
The plant resumed production in 2016, but there are similar problems across the
region. The rapid increase in coal-fired cement production in Tajikistan also
raised concerns about pollution.[fn]Dirk van der Kley, “China shifts polluting
cement to Tajikistan”, chinadialogue.net, 8 August 2016.Hide Footnote
III.
Russia and the Eurasian Economic Union
The
SREB is ambitious and has significant funding, but China’s regional political
influence remains secondary to Russia’s. Moscow retains important political,
economic, personal and institutional links in Central Asia and seeks to reverse
its declining economic influence by developing regional institutions. Early
post-Soviet attempts to develop regional organisations failed until a 2010
Customs Union among Russia, Belarus and Kazakhstan was formed. This evolved
into the Eurasian Economic Union (EEU), whose Central Asian members include
Kazakhstan and Kyrgyzstan.[fn]Crisis Group Europe and Central Asia Report
N°240, The Eurasian Economic Union: Power, Politics and Trade, 20
July 2016.Hide Footnote
A.
The EEU and Cooperation in Central Asia
The
EEU has not had a good start. “The Eurasian Union is good for Russia, but
offers nothing for Kazakhstan”, said a businessman in north-western Kazakhstan.[fn]Crisis
Group interview, Uralsk, May 2016.Hide Footnote
His view is backed by trade statistics. In the first nine months of 2016,
Kazakhstan’s trade with EEU member-states was down by 26.4 per cent compared to
the same period in 2015.[fn]“Товарооборот Казахстана со странами ЕАЭС за 9 мес.
упал на 26,4%”[“Kazakhstan’s trade with the EEU states for the first nine
months had dropped by 26.4 per cent”], KyrTAG, 15 November 2016.Hide Footnote Many problems were caused by the
Russian economic crisis and currency volatility; in 2014, the value of the
Russian rouble compared to the U.S. dollar more than halved, cheapening the
price of Russian goods for Kazakh customers, damaging domestic producers and
leading to tit-for-tat restrictions by both sides until the Kazakh tenge also
was devalued.
Kyrgyzstan
suffered even more as the rouble’s collapse undermined remittances from labour
migrants and made its own exports too expensive. Kyrgyz farmers struggle to
take advantage of major new markets: they have no capacity to sort produce for
large Russian supermarket chains or to transport it to market. Most
agricultural goods lack clear certification procedures and few laboratories can
generate the required certification,[fn]“Правительство затягивает строительство
спецлабораторий и центров сертификации сельхозпродуктов – депутат” [“Deputy:
the government is delaying the construction of special laboratories and centres
for certification of the agricultural products”], KyrTAG, 29 September 2016;
Dilya Yusupova, “Две ветлаборатории в КР оборудуют на российские деньги. Дают
138 млн рублей” [“Two veterinary laboratories will be equipped by the Russian
money. They are giving 138 million roubles”], Zanoza, 16 November 2016.Hide Footnote leading to unilateral bans on
Kyrgyz exports by other countries while cheaper imports from elsewhere in the
EEU are unimpeded.[fn]Zamira Kozhobayeva, “ЕАЭС: Партнерство с
препирательством” [“EEU: Partnership with bickering”], Radio Free Europe/Radio
Liberty (RFE/RL) Kyrgyz Service, 18 November 2016.Hide Footnote
A local business leader said: “Our agro-industrial system will die and we will
be totally dependent on external suppliers”.[fn]Anastasia Bengard, “Рустам
Жунушов: В КР бесконтрольно ввозят сельхозпродукцию” [“Rustam Zhunushov:
Agricultural products are imported to the Kyrgyz Republic uncontrolled”],
24.kg, 19 October 2016.Hide Footnote
The
EEU has no equivalent to the EU’s Structural Funds which helped ease
disparities across EU member states. Indeed, the EEU never was designed as a
development organisation for poorer countries and attempts to develop ad hoc
instruments, such as a $500 million Russian-Kyrgyz Development Fund to support
those affected by entry, have not made much difference. It initially struggled
to find projects that met its lending criteria, although it subsequently funded
some 700 small projects, primarily through local bank credits.[fn]Vladimir
Nekrasov, Roundtable presentation, Bishkek, 24 May 2016; see Российско-Кыргызский
Фонд Развития, www.rkdf.org.Hide Footnote Also, some
important bilateral Russian commitments to infrastructure projects failed to
materialise; in 2012, Russia promised to invest $2 billion to complete the
Kambar-Ata and Upper Naryn hydroelectric plants in Kyrgyzstan but Russia’s
economic crisis and negotiating difficulties ended its interest in these
projects.[fn]Cholpon Orozobekova, “Kyrgyzstan’s Capacity to Meet its CASA-1000
Obligations Comes under Question”, Eurasia Daily Monitor, vol.13, no.103 (27
May 2016).Hide Footnote
The
most popular aspect of the EEU is improvement in some cross-border transit. A
Kazakh businessman recalls when it took a week to import cargo across the
border: “We would wait three days at the border, and then take another three
days to get through the customs”.[fn]Crisis Group interview, businessman,
Uralsk, June 2016.Hide Footnote Another says
that he used to regularly pay $200 in bribes to cross the border, but now pays
nothing.[fn]Crisis Group interview, shop owner, Uralsk, June 2016.Hide Footnote A businesswoman in northern
Kazakhstan argues that “the victory of this union [EEU] is that they removed
the customs, they took away a whole barrier. All the bribes were there”.[fn]Crisis
Group interview, north-west Kazakhstan, June 2016.Hide Footnote
Travel
can still be difficult, however, particularly on the Kazakh-Kyrgyz border. At
the main Kordai border crossing, 10km outside the capital Bishkek, delays and
queues are still the norm. According to one regular traveller: “Nothing changed
at the border, in fact maybe it got even worse”.[fn]Crisis Group interview,
Bishkek, May 2016.Hide Footnote Some suspect
the delays are manufactured by border guards seeking bribes. According to one
driver: “If you pay 1,000-2,000 tenge, ($3-$6) you’re allowed to cross without
problem. If not, they’ll want to search the car, put your goods through the
x-ray, etc. If you don’t pay, you can be delayed an hour or more”.[fn]Crisis
Group interview, Bishkek, May 2016.Hide Footnote
Russian
anti-immigrant violence declined in recent years, but there are still frequent
attacks and harassment of Central Asian workers.
The
most significant boost for Kyrgyzstan is in labour migration to Russia, although
residual anti-immigrant feelings in Russia present a darker side. As citizens
of an EEU member country, Kyrgyz migrants to Russia no longer need to pay for a
monthly work permit (patent) or take onerous language tests – though the former
rules were not always followed in the first place. Kyrgyz officials still point
to the failure of Russian employers to provide proper work contracts and papers
for migrants.[fn]Crisis Group interview, Bishkek, May 2016.Hide Footnote Russian anti-immigrant violence
declined in recent years, but there are still frequent attacks and harassment
of Central Asian workers.[fn]According to the Russian NGO, Sova, four
immigrants from Central Asia were reported killed and six injured in 2015, down
from 14 and 29 in 2014. Sova suggests that these certainly underestimate the
real figure, as many attacks are not reported. See: “The Ultra-Right Movement
under pressure: Xenophobia and radical nationalism in Russia, and efforts to
counteract them in 2015”, Sova, 8 April 2015.Hide Footnote
There are concerns among Central Asians that anti-migrant sentiment could rise
again following the involvement of an ethnic Uzbek from Kyrgyzstan in a suicide
attack on the St. Petersburg metro 3 April 2017.[fn]“НАК назвал основой
террористических групп в России трудовых мигрантов из СНГ” [“NAC identified
labour migrants from the CIS as the backbone of terrorist groups in Russia”],
Interfax, 11 April 2017.Hide Footnote
Although
many officials and businesspeople in Kazakhstan and Kyrgyzstan are
disillusioned about EEU membership, opponents do not represent a powerful
political force in either country.[fn]The main anti-EEU group is primarily a
Facebook group: “Kyrgyzstan against the Customs Union”. Its members suggest
that they have ceased any active attempts to oppose the EEU. Crisis Group
interview, Bishkek, 25 May 2016. “В Кыргызстане бросили клич о выводе страны из
ЕАЭС” [“A cry about withdrawal from the EEU is thrown in Kyrgyzstan”], Delovaya
Evraziya, 16 May 2016.Hide Footnote There is no
“Kazexit” in the cards.[fn]Crisis Group interviews, parliamentary deputies,
Jogorku Kenesh, Bishkek, 25 May 2016; businesspeople and officials, Bishkek,
May 2016.Hide Footnote Political and business
elites are resigned to membership, either hoping that the EEU concentrates
primarily on its economic mandate, or that it turns into yet another “virtual”
organisation that can safely be ignored.[fn]Crisis Group interviews, Astana,
Moscow, May 2016.Hide Footnote Opinion
polls still suggest high support among both Kazakhs and Kyrgyz for membership,
with more than 80 per cent in favour in both countries.[fn]These results are
from the Eurasian Development Bank, which is a strong supporter of Eurasian
integration. In general, survey figures can be quite volatile. See Eurasian
Development Bank, “Интеграционный барометр ЕАБР” [“Integration barometer, EABR”],
2015, p. 97.Hide Footnote
B.
Expanding Eurasia?
The
EEU is presented as a purely economic project but in practice Russia also views
it as a geopolitical and ideological effort – a platform for Moscow’s own Great
Power aspirations.[fn]Crisis Group Briefing, The Eurasian Economic Union: Power, Politics and Trade, op.
cit.Hide Footnote Russian officials and analysts
talk of “Greater Eurasia” in which Moscow serves as a key pivot in a region
stretching from Eastern Europe to East Asia.[fn]Sergei Karaganov, “From East to
West, or Greater Eurasia”, Russia in Global Affairs, 25 October 2016.Hide Footnote Russian deputy foreign minister,
Igor Morgulov, claims that “Greater Eurasia” could facilitate integration
between the EEU and the SREB, and among the EEU, the Shanghai Cooperation
Organisation and ASEAN.[fn]“Eurasian integration processes to be open for
Western partners – diplomat”, TASS, 31 May 2016.Hide Footnote
In May 2016, Russian first deputy Prime Minister Igor Shuvalov compared the
initiative with the U.S.-led Trans-Pacific Partnership, and said: “The whole
Eurasian space is set to see an all-encompassing trade and economic partnership
emerging. This partnership, which is primarily emerging between the EAEU
[Russia’s acronym for the EEU] and China, will be open for other countries to
join”.[fn]Ibid.Hide Footnote
Russian
officials and analysts talk of “Greater Eurasia” in which Moscow serves as a
key pivot in a region stretching from Eastern Europe to East Asia.
For
Kazakhstan and Kyrgyzstan, this involves a complex balancing act. On the one
hand, officials in both capitals do not wish to get caught up in Russia’s
complex geopolitics. Both countries refused to join Russia in imposing
sanctions on agricultural imports from North America and the EU or on imports
from Turkey in 2015. They maintain relations with Ukraine despite Russia’s
conflict with Kyiv. On the other hand, they see benefits in a project that can
promote Eurasian integration.
In
1994, Kazakh President Nazarbayev called for Eurasian integration and published
a plan to form a “Eurasian Union of States”,[fn]“Евразийский союз: новые
рубежи, проблемы, перспективы” [“Eurasian Union: new frontiers, problems,
prospects”], speech by Nursultan Nazarbayev to session of the Academy of Social
Sciences of the Russian Federation, Moscow, 16 February 1996.Hide Footnote likely a way of cementing
Russian-Kazakh relations without undermining Kazakh national identity. After
land-related protests and terrorist attacks in north-west Kazakhstan in
May-June 2016 which the Kazakh government blamed on Islamic extremists, Russian
nationalists talked about a potential Russian military intervention in northern
Kazakhstan, which is home to a sizeable ethnic-Russian minority.[fn]“Лимонову
не терпится ввести войска в Казахстан” [“Limonov can’t wait to send troops to
Kazakhstan”], Rosbalt, 8 June 2016; other Russian observers also predict a
“Ukrainian scenario” in Kazakhstan, see, for example, Arman Kudaibergenov,
“Казахстану угрожает «судьба Украины» – российский эксперт” [“Russian expert:
Kazakhstan is threatened by ‘the Ukrainian scenario’], 365info.kz, 23 May 2016.
“Александр Разуваев: Каких рисков нам ждать от наступающего августа?”
[“Alexander Razuvayev: what risks to expect from this coming August?”],
Vzglyad, 20 July 2016.Hide Footnote But the
appeal of separatist tendencies is lessened by Kazakhstan’s membership in the
EEU since it mitigates fears of ethnic Russian minorities. In other words, the
concept of Eurasia is useful for Kazakhstan, both in managing relations with
Russia and in bridging its own internal ethnic divides.[fn]Golam Mostafa, “The
Concept of ‘Eurasia’: Kazakhstan’s Eurasian Policy and its Implications”, Journal
of Eurasian Studies, vol. 4, no.2 (2013), pp. 160-170.Hide Footnote
In
reality, the concept of Greater Eurasia for now is mostly rhetorical. The EEU
struggles to find potential members. Leaders in Uzbekistan and Turkmenistan are
implacably opposed and seem to privilege ties with China. In 2015, China became
Uzbekistan’s main trade partner taking the top spot from Russia.[fn]“Uzbekistan:
Russia loses top trader status to China”, EurasiaNet.org, 27 April 2016.Hide Footnote When Xi Jinping visited
Uzbekistan in June 2016, he became the first foreign head of state to address
the Uzbek parliament.[fn]“Си Цзиньпин выступил перед парламентом Узбекистана”
[“Xi Jinping addressed to the Parliament of Uzbekistan”], Uz24.uz, 22 June
2016. Suspicion among Uzbekistan’s elite toward the EEU is not necessarily
shared among ordinary Uzbeks – according to one 2014 poll, 68 per cent of
Uzbeks supported the idea of the EEU. EDB Integration Barometer, 2015,
Analytical Summary”, Eurasian Development Bank, Centre for Integration Studies,
St. Petersburg, p. 7.Hide Footnote That said,
in some ways, Uzbekistan already is economically integrated with the EEU zone:
at least two million Uzbeks work in Russia, although their numbers have
declined as they face increased hurdles to migration and lower wages.
Turkmenistan
takes an even stronger stance against regional integration, informed by its
official ideology of “neutrality”, which in practice is a policy of
self-isolation. Turkmenistan attended the initial meeting of the Shanghai
Cooperation Organisation in 2007 but refused to join and has rejected any
possibility of EEU membership.[fn]Annette Bohr, “Turkmenistan: Power, Politics
and Petro-Authoritarianism”, Chatham House Research Paper, March 2016, p. 65.Hide Footnote Unlike other Central Asian
countries, Turkmenistan has few labour migrants working in Russia and limited
trade with EEU states. Its main exports, oil and gas, flow primarily to China.
Russia’s Gazprom was a major buyer of Turkmen gas but suspended purchases in
early 2016. Turkmenistan also suspended exports to Iran in 2016. As a result,
it now heavily relies on China.
Tajikistan
is more likely to join the EEU but, among other factors, China’s allure may
encourage it to resist. Remittances from Russia declined sharply in 2015-2016
but still remain the main source of income for a majority of the population.[fn]“Slowing
Growth, Rising Uncertainties”, Tajikistan Economic Update No. 1, World Bank
Group, spring 2015.Hide Footnote Membership
has public support because it could improve the legal status of hundreds of
thousands of Tajik labour migrants already in Russia. Pro-integration
economists present an optimistic scenario, predicting up to 3.5 per cent
additional economic growth per year in the medium term after accession.[fn]“Economic
Impact of Tajikistan’s Accession to the Customs Union and Single Economic
Space”, Eurasian Development Bank, April 2015.Hide Footnote
However, given Russia’s deep recession and the high costs associated with
funding Tajikistan’s integration in the economic bloc, Tajikistan’s early
accession is growing less attractive to Russian officials.[fn]Crisis Group
interview, Moscow, May 2016.Hide Footnote
Waning
Russian interest in early accession is matched by ambivalence in Dushanbe.
There is unlikely to be significant investment in Tajikistan from other EEU
members, whereas China, Iran and Gulf states are all involved in investment
projects.[fn]Alexander Shustov, “Таджикистан ориентируется на Азию”
[“Tajikistan is focusing on Asia”], Nezavisimaya gazeta, 16 May 2016.Hide Footnote Although these infrastructure
investments do not always benefit ordinary people they often offer lucrative
deals for local partners. Companies close to the government reportedly have
developed close ties with China, suggesting a potentially stronger interest
among some constituents in that relationship.[fn]Crisis Group interview,
Moscow, May 2016; Viktoria Panfilova, “Таджикистан не спешит вступать в
Евразийский экономический союз” [“Tajikistan is not rushing to join the
Eurasian Economic Union”], Nezavisimaya gazeta, 26 August 2016.Hide Footnote
Still,
Russian diplomats are confident of Russia’s privileged position in Central
Asia. They are keenly aware of anti-Chinese sentiment in the region and trust
that over the long term it could work to Moscow’s advantage. The scale of
Chinese investment cannot be matched, but Russia views its linguistic, cultural
and military links as insurance against Chinese overreach.[fn]Crisis Group
interview, Russian diplomat, February, 2016.Hide Footnote
Vital to Moscow’s connection with the region are the millions of Central Asian
migrants working in Russia and the remittances they send home annually. Though
the value of remittances may fluctuate they are a lifeline to Central Asia’s
poorer economies such as Kyrgyzstan and Tajikistan.[fn]In April 2016, the
Russian Federal Migration Service said there were 588,811 migrants from
Kazakhstan in Russia; 574,194 from Kyrgyzstan; 878,536 from Tajikistan; 1.75
million from Uzbekistan; and 24,363 from Turkmenistan. In 2015 remittances from
Kyrgyz migrants amounted to $1.7 billion and accounted for 25.7 per cent of
GDP. Remittances from Tajik migrants amounted to $1.2 billion or 28.8 per cent
of GDP. See “Количество трудовых мигрантов из Центральной Азии в России несколько
сократилось” [“Number of labour migrants from Central Asia in Russia decreased
by several times”], Ferghana.ru, 7 April 2016; “Remittance Data Inflows
April 2017”, World Bank, April 2017.Hide Footnote
IV.
Cooperation and Competition
Chinese
and Russian regional projects in Central Asia have different goals. The SREB
aims to develop ease of transport and freer trade to facilitate Chinese exports
and access to energy supplies. The EEU, a customs union that raised external
tariffs on imports from non-EEU members, seeks to ensure and legitimise
Russia’s influence, including by establishing relations with other blocs like
the EU. Nevertheless, geopolitical realities have forced both sides to
cooperate. Russia needs good relations with China to counterbalance its
problems with the West. China recognises Russia’s historical and security role
in the region. Both states are opposed to greater Western, particularly U.S.,
involvement in Eurasia. Their worldviews and ideologies overlap and they share
similar goals in counter-terrorism and in maintaining stability. The two states
appear close enough to manage tensions between their regional visions for
Central Asia.
Russia
needs good relations with China to counterbalance its problems with the West.
For
now, Russia remains the key security player in the region. It retains
significant operational military capacity with military bases in Kyrgyzstan and
Tajikistan. Russia also leads the Collective Security Treaty Organization
(CSTO), which includes Kazakhstan, Kyrgyzstan and Tajikistan, and has expanded
its military ties to Uzbekistan and Turkmenistan, although both countries
strongly oppose military basing agreements or membership in the CSTO. Russia
aims to prevent regime collapse in any Central Asian state, particularly
through a Western-friendly “colour revolution”; to stem any spillover of
Islamist radicalism from Afghanistan into Central Asia and southern Russia; and
to counter narcotics trafficking.
China
shares these goals and along with Moscow believes strong regimes are best
placed to control potential internal conflict. During government suppression of
protests or uprisings, Beijing and Moscow backed hard-line government responses
in Andijan (Uzbekistan) in 2005; Janaozen (Kazakhstan) in 2011; and
Gorno-Badakhshan (Tajikistan) in 2012. China and Russia – together with all
Central Asian states except Turkmenistan – are members of the Shanghai
Cooperation Organisation (SCO), a security grouping designed to counter what
China terms the “three evils”: terrorism, separatism and religious extremism.
However, the SCO’s operational capacity is limited.
Chinese
analysts recognise that the SREB could multiply the number of potential Chinese
targets for terrorism and protests as trade, investment and transhipment
increase the presence and visibility of their citizens and projects. Chinese
companies are likely to make greater use of Chinese and foreign private
security companies with unarmed personnel for day-to-day protection of their
operations in Central Asia, while counting on local government and Russian
security forces to respond to more serious threats. But as Beijing’s interests
in Central Asia grow, greater involvement in security matters will tend to
follow.
A.
The SREB and the EEU
In
May 2015, President Vladimir Putin and President Xi met in Moscow and signed a
joint declaration to coordinate the SREB and EEU with the stated goal of
forming a common space on the Eurasian continent.[fn]“РФ и Китай договорились о
‘состыковке’ проектов ЕАЭС и “Шелковый путь” [“Russia and China agreed on
‘docking’ the EEU and the Silk Road projects”], TASS, 8 May 2015. “China,
Russia agree to integrate Belt initiative with EAEU construction”, Xinhua, 8
May 2015; Li Xin, “Chinese Perspective on the Creation of a Eurasian Economic
Space”, Valdai Discussion Club Report, November 2016.Hide Footnote
In December 2015, after talks in Beijing, Prime Minister Dmitry Medvedev
announced an initial agreement that “sealed the intention of the sides to
continue to search for points of common interest between the Eurasian Economic
Union and China’s Silk Road Economic Belt project”.[fn]“Russian foreign
ministry notes further ‘negative trends’ in world in 2015”, BBC Monitoring
Former Soviet Union, 30 December 2015; Medvedev and Chinese Premier Li Keqiang
reaffirmed their commitment for the Belt and Road Initiative and EEU to
cooperate on transportation, cross-border infrastructure, logistics and other
key areas, “中俄总理第二十一次定期会晤联合公报” [“Joint Communiqué on the 21st
Regular Meeting of Chinese and Russian Prime Ministers”], 8 November 2016.Hide Footnote
The
following February, a working group between Chinese officials and the EEU
agreed to develop a “roadmap” for cooperation.[fn]Alexandra Bayazitova,
“Дмитрий Панкин: ‘Объем рублевых платежей в ЕАЭС достиг 70%’” [“Dmitry Pankin:
the volume of rouble payments in the EEU has reached 70 per cent”], Izvestia,
19 February 2016.Hide Footnote Foreign
Minister Wang Yi on a visit to Bishkek said he saw the “SCO as a platform to
speed up the docking of the Silk Road Economic Belt with the construction of
the Eurasian Economic Union”.[fn]“Wang Yi Talks about China’s ‘Four Support’ to
Central Asian Countries”, Embassy of the People’s Republic of China in the
United Kingdom of Great Britain and Northern Ireland, 22 May 2016. A year
later, Foreign Minister Wang said Russia and China were preparing to do a
feasibility study on building a Eurasian Economic Partnership. “Chinese FM says
China-Russia ties set to grow stronger regardless of changing global dynamics”,
Xinhua, 26 May 2017.Hide Footnote On a July
2017 visit to Russia, President Xi said his government was discussing an
agreement on economic cooperation and a list of joint projects with the EEU.[fn]“Written
interview by H.E. Xi Jinping, president of the People’s Republic of China with
Russian media organizations”, Xinhua, 3 July 2017.Hide Footnote
During that visit, the first signs of concrete agreements emerged as the Russia
Direct Investment Fund said it would partner with the China Development Bank to
create a new $1o billion cooperation fund for cross-border projects, while
China Development Bank reportedly gave Russian state development bank VEB an
$850 million loan for an innovation fund.[fn]“Russia, China form $10bn
investment fund”, Financial Times, 4 July 2017.Hide Footnote
This
slow diplomatic pace reflects a process through which Russian strategists have
eventually concluded it is more in Russia’s interest to shape China’s initiative
than to resist it.[fn]In March 2015, President Xi sent Politburo member Li
Zhanshu, director of the Communist Party’s General Office, to Moscow to prepare
the ground for an agreement; see: Christopher K. Johnson, “President Xi
Jinping’s ‘Belt and Road’ Initiative”, Center for Strategic and International
Studies, 28 March 2016. However, follow-up for Xi’s May 2015 Moscow visit
reportedly was handled by the China department of Russia’s foreign ministry,
which did not communicate with the EEU department, losing many months until
experts alerted the Kremlin. Only later did leaders at the EEU Astana summit
direct the Eurasian Economic Commission to coordinate communication with
Beijing on the SREB: see Mathieu Duchâtel, François Godement et al.,
“Eurasian integration: Caught between Russia and China”, European Council on
Foreign Relations, 7 June 2016.Hide Footnote However,
Russia still has reservations. There has been little follow-up, and for now it
seems more likely the two projects will work largely in parallel, with the SREB
prioritising bilateral trade, investment and infrastructure while the EEU
focuses on internal cooperation among its members. Occasional projects may be
badged as joint initiatives.[fn]Crisis Group interviews with Chinese scholars,
Beijing and Shanghai, March-April 2017. Aside from geopolitical considerations,
better routes through Central Asia would reduce Russia’s share of the
China-Europe transhipment business.Hide Footnote
The
SREB provides the EEU with enhanced legitimacy through recognition by a major
power. In the wake of the conflict over Ukraine and ensuing Western sanctions,
China’s initiative also offers Russia an alternative economic and political
pole that supports its own efforts to turn eastward, limit American and
European influence in its backyard, and promote development, social stability
and regime security in Central Asia.[fn]Richard Ghiasy and Jiayi Zhou, “The
Silk Road Economic Belt: Considering security implications and EU–China
cooperation prospects”, SIPRI, 2017; Alexander Cooley, “Emerging Political
Economy”, op. cit.Hide Footnote “Russia’s
main goal is to make the SREB a tool for strengthening and improving the [EEU],
to prevent the two from competing with each other, and in the future, to make
the resources of the SREB the foundation for creating an economic and political
Greater Eurasian Community”, according to Timofey Bordachev at the National
Research University in Moscow.[fn]Quoted in Li Xin, “Chinese Perspective on the
Creation of a Eurasian Economic Space”, Valdai Discussion Club Report, November
2016.Hide Footnote
Despite
the official positive view on relations with China, Russian experts privately
frequently warn of challenges faced by Central Asian states in relations with
China.
There
are limits to cooperation. Despite the official positive view on relations with
China, Russian experts privately frequently warn of challenges faced by Central
Asian states in relations with China.[fn]Crisis Group interviews, Bishkek,
March 2016; Moscow, May 2016.Hide Footnote China
prefers to do bilateral deals rather than deal with the EEU. Efforts by Russian
officials to encourage EEU members to coordinate their involvement in the SREB
have led nowhere.[fn]Alexandra Bayazitova, “Дмитрий Панкин: «Объем рублевых
платежей в ЕАЭС достиг 70%»” [“Dmitry Pankin: the volume of rouble payments in
the EEU has reached 70 per cent”], Izvestia, op. cit.Hide Footnote
More significantly, China is committed to reducing barriers to trade along the
SREB, while the EEU is constructing a customs union with relatively high
tariffs and has launched anti-dumping investigations against Chinese products.
In
the long term, China would like to develop a Free Trade Area (FTA) between
China and Central Asia whereas Russia has opposed moves by China to promote an
FTA among SCO members, fearing that China would economically dominate the bloc
while an influx of cheaper Chinese goods would erode hopes of fostering
domestic industry through trade-restricting policies such as
import-substitution.[fn]China exports mostly finished products to Russia and
Central Asia and imports primarily energy, metals and raw materials. Sebastien
Peyrouse, “Central Asia’s tortured Chinese love affair”, East Asia Forum, 30
Nov. 2016; Reshaping Eurasian Space: Common Perspectives from China, Russia and
Kazakhstan Think Tanks, Valdai Discussion Club, July 2017; “China Suggests Free
Trade Zone for the SCO”, The Diplomat, 4 November 2016; Jeffrey Schubert and
Dmitry Savkin, “Dubious Economic Partnership: Why a China-Russia Free Trade
Agreement is Hard to Reach”, China Quarterly of International Strategic Studies,
vol. 2, no. 4, pp. 529-547, winter 2016.Hide Footnote
Uzbekistan is also strongly opposed to any China-led free trade area. Kyrgyz
entrepreneurs, however, welcome the idea, arguing that an SCO free trade area
would be the ideal complement to the EEU.[fn]Crisis Group interview, trade
expert, Bishkek, Kyrgyzstan, 16 March 2016.Hide Footnote
Chinese
analysts see the EEU’s primary aim as helping Russia recover its great power
status and institutionalise its regional sphere of influence. To the extent
that it facilitates policy coordination and promotes peace and stability, they
reckon it may benefit the SREB. But Chinese scholars also tend to be sceptical
of the EEU’s long-term prospects, viewing it as a defensive, inward-focused
construct that will exacerbate Russia’s geopolitical rivalry with the West.
They also point to the union’s lack of economic rationale or common market, the
potential for territorial disputes among members, and the tension between its
binding mechanisms and the natural tendency of Central Asian states to balance
between Beijing and Moscow. They assess that Russia will have to make further
concessions to satisfy the divergent, centrifugal interests of the other
members and, in the absence of reforms to its own economy, bear an increasingly
heavy burden.
By
contrast, the Belt is conceived as an open web of bilateral agreements in which
the economic benefits are explicit, while political expectations (such as
supporting the One-China Policy and other Chinese interests) are largely
implicit. As one Chinese scholar put it, “the EEU can’t stop the power of the
market. Everything will flow back to the biggest market”.[fn]Crisis Group
interviews with Chinese scholars, Beijing and Shanghai, March-April 2017; Wang
Weiran and Wang Jingliang, “The Prospects of the Eurasian Economic Union”, Contemporary
International Relations, vol. 25, no. 5, September-October, 2015, pp. 91-104;
Wang Haibin, “The Eurasian Economic Union and Its World Influence”, Contemporary
International Relations, vol. 25, no. 5, September/October, 2015, pp. 105-121;
Li Lifan, “The Challenges Facing Russian-Chinese Efforts to ‘Dock’ the Eurasian
Economic Union (EEU) and One Belt, One Road (OBOR)”, Russian Analytical Digest no.
183, 3 May 2016; Li Ziguo, “Eurasian Economic Union: Achievements, Problems and
Prospects”, China International Studies, May/June 2016; Alexander Cooley,
“Emerging Political Economy”, op. cit.; Tom Miller, China’s Asian Dream, op.
cit.Hide Footnote
B.
A Role for the West?
The
EU and the U.S. are influential actors in Central Asia but increasingly
marginalised by the rise of China and a reassertive Russia. The EU’s Central
Asian Strategy, devised in 2007, tried to address multiple challenges with
limited funds: just $750 million in 2007-2013, projected to rise to $1 billion
in 2014-2020. Failure of the 1990s Transport Corridor Europe-Caucasus-Asia
(TRACECA) program brought to an end EU support for major infrastructure or
connectivity projects in the region. Most funding in the present cycle is
earmarked for education and rural development. However, the Strategy is
unfocused and lacks political support, leading to few visible results.[fn]“Implementation
and Review of the European Union Central Asia Strategy: Recommendations for EU
action”, European Parliament, Directorate-General for External Policies, 2016.Hide Footnote
The
EU and the U.S. are influential actors in Central Asia but increasingly
marginalised by the rise of China and a reassertive Russia.
The
U.S. has its own version of a “New Silk Road” launched by then Secretary of
State Hillary Clinton in Mumbai in 2011; its goal is to link Central Asia
through trade and export routes to Afghanistan and South Asia.[fn]“US revives
two key infrastructure projects in Asia: Five things to know”, The Indian
Express, 24 May 2017.Hide Footnote A new C5+1
format, launched in 2015, involves regular meetings among the five Central
Asian states and the U.S. The U.S. continues to offer political support to two
major infrastructure projects: the Turkmenistan-Afghanistan-Pakistan-India
Pipeline (TAPI), a gas export route from Turkmenistan to South Asia, and
CASA-1000, an electricity generation and export project involving Kyrgyzstan,
Tajikistan, Afghanistan and Pakistan. Both projects face political, security
and commercial challenges that may prevent implementation.
More
significant influence is exerted by the three major international development
banks, the World Bank, European Bank for Reconstruction and Development (EBRD)
and Asian Development Bank (ADB), all of which are willing to cooperate with China’s
SREB program. In January 2016, China became a shareholder in the EBRD.[fn]Anthony
Williams, “China becomes EBRD member as Suma Chakrabarti visits Beijing”, EBRD,
15 January 2016.Hide Footnote In June
2016, the Asian Infrastructure Investment Bank (AIIB) and EBRD agreed on their
first joint project, a $55 million road construction project in Dushanbe, part
of a bigger project to improve connections to Uzbekistan, long undermined by
poor relations between the two countries.[fn]Svitlano Pyrkalo, “Road project in
Tajikistan becomes first joint EBRD-AIIB investment”, EBRD, 24 June 2016.Hide Footnote The ADB and AIIB also have
committed to cooperation along the Silk Road, with an early joint project agreed
in 2016 in Pakistan.[fn]“ADB, AIIB Sign MOU to Strengthen Cooperation for
Sustainable Growth”, news release, ADB, 2 May 2016.Hide Footnote
The World Bank pursues joint projects with the AIIB, including in Central Asia[fn]Sam
Fleming, “AIIB and World Bank to work on joint projects”, Financial Times, 13
April 2016.Hide Footnote .A road project in Almaty,
Kazakhstan, is jointly funded by the World Bank, the EBRD and AIIB.[fn]Tom
Mitchell and Jack Farchy, “China’s AIIB seeks to pave new Silk Road with first
projects”, Financial Times, 19 April 2016.Hide Footnote
The
AIIB concentrates on joint projects in the wider Belt and Road Initiative,
working with established multilateral lenders to boost its experience of
complex projects and to give it greater legitimacy.[fn]Raffaello Pantucci,
“China’s Development Lenders”, op. cit.Hide Footnote
These joint projects, and cooperation in the region more generally, raise
broader questions. Although the EBRD has committed to “engaging in dialogue on
such issues as governance and social and environmental standards”,[fn]Anthony
Williams, “China becomes EBRD member”, op. cit.Hide Footnote
multilateral lenders and development agencies could be tempted to dilute
environmental and governance commitments in order to ensure their participation
in projects. One mechanism to boost oversight and attention to governance
issues would be to encourage greater civil society and media involvement in
project planning and implementation – something neither China nor Russia is
likely to do.
V.
Conclusion
China’s
Silk Road Economic Belt and Russia’s Eurasian Economic Union will have a
profound impact on Central Asia’s future. Both have significant economic
potential but also political downsides. In particular, China and Russia should
not mistake the political status quo for a stable investment environment. They
ignore potential conflict triggers – ethnic tensions, nationalism or inept and
corrupt governance – at their long-term peril.
The
two initiatives offer the prospect of trade, investment and enhanced
cooperation in a region that is in need of all three. The SREB in particular,
although driven by China’s national interest, has the potential to alleviate
Central Asia’s infrastructure deficits, improve connectivity and spur economic
growth. Yet, much like the EEU, it has fostered a politically-driven rush to
sign deals and memoranda, while the policy and planning bureaucracy has
struggled to keep up. Some projects may never materialise, others could face
long delays. Additionally, while officials and executives who implement the
Belt may seek to keep their focus on trade and investment, they will find it
hard to avoid thornier questions of local politics, security and environmental
impact as their presence becomes more prominent.
Beijing’s
and Moscow’s basic premise appears to be that economic development coupled with
a robust security apparatus will be enough to manage social problems.
Beijing’s
and Moscow’s basic premise appears to be that economic development coupled with
a robust security apparatus will be enough to manage social problems. But if
prosperity is unequally shared, local communities are not consulted on projects
that affect them, and reforms of institutions and systems of governance fail to
keep pace with investment inflows, then both the SREB and EEU could produce
economically unviable projects that perpetuate existing market-distorting
practices and rent-seeking, while exacerbating ethnic, class and regional
divides, with social tensions masked by state repression.
Central
Asia’s states also risk becoming indebted conduits for Chinese products being
shipped to Europe and energy supplies flowing eastward. Their challenge is to
extract as much benefit from the EEU and SREB as possible without giving up too
much of their sovereignty, and to leverage Chinese trade, investment and
transhipments to foster local businesses. That will require an entrepreneurial
cultural change for Central Asians long used to resource extraction and
Soviet-style central planning.
The
EU and the U.S. cannot compete with the scale of Russian and Chinese influence
in the region. Rather than develop their own “Silk Road” or analogous plans,
they could instead focus on realistic initiatives that fit within existing
regional projects or help develop bilateral engagement with key Central Asian
republics. They can play an important role as complementary partners for
Central Asian states that seek a more varied foreign policy, although this
should not be done at the cost of adopting an uncritical approach to
authoritarian regimes.
As
China and Russia expand their influence, competition in Central Asia optimally
should go beyond the establishment of spheres of influence. Instead, it should
be about who can do more to foster the economic growth, skills development and
innovation that would benefit both Central Asian societies and the rest of
Eurasia.
Bishkek/Hong
Kong/Brussels, 27 July 2017
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