Central Asia: is the Ménage à Trois with China and Russia Sustainable?
Central Asia is both a partner and a trade gateway for China and Europe. It is located on two branches of the New Silk Road. Despite criticism, China is the most involved in the development of Central Asian corridors. This deployment is not obvious given the competition from other routes and poor regional cooperation. While Russian influence remains significant through expatriate remittances, its military bases, and culture, it is being supplanted by China in economic matters.
Central Asia is Both a Partner And a Trade Gateway for China and Europe
The main partners of the region are the European Economic Area (25% of the region’s trade), China (21%) and Russia (18%). Turkey, Kazakhstan, South Korea, and the United States also rank high among the partners. As a result, and because of their isolation, the interest of the countries of the region in the Silk Roads and its projects does exist. But there is also interest from their partners, particularly from Europe and China. For them, beyond their trade with the region, their bilateral trade can benefit from the implementation of new projects under the Chinese Belt & Road Initiative.
Central Asia Is Located On Two Belt & Road Routes
The Belt and Road initiative (B&R), launched by Chinese President Xi Jinping in Kazakhstan in 2013, aims to promote the development of a network of connectivity and cooperation between China and Western Eurasia through loans and direct investment. This should notably enable it to secure its energy and raw material supplies, and develop new, faster and cheaper routes for its main export and import flows. At the same time, it should also promote the development and stability of the regions covered, counter the development of radical Islamism and its expansion on its territory, and find outlets for construction activity with overcapacity on its domestic market. China is the largest provider of funding, with the World Bank and financial institutions in partner countries providing few resources in this context. Private financing may also be used. At the beginning of 2019, the initiative involved 130 countries representing 41% of world GDP and 49% of trade.
In Central Asia, this takes the form of direct investment and loans in research, exploitation and transport of hydrocarbons, extraction of gold, coal and other minerals, generation and transport of electricity, including hydropower, construction and modernisation of roads and railways, logistics centres, telecommunications, agriculture and tourism. Although comprehensive data on completed or ongoing achievements and projects are patchy in the absence of an official list (less true for Kyrgyzstan and Uzbekistan), it appears that China has invested more than $4 billion in Turkmen gas, for which it is almost the only outlet and which covers 40% of its needs, particularly through the gas pipeline linking the two countries through Uzbekistan and Kazakhstan. China’s investments in Kazakhstan, particularly in raw materials, are very significant, making it its main regional partner. The two countries have developed the dry port of Khorgos on their border, making it a key road and rail transit centre in a country that is a geographical gateway, both for access to the region and for transit between China and Russia/Europe.
However, a majority of the investments made, notably in transport routes, correspond to projects that pre-date the B&R, sometimes initially launched by the countries of the region and supported by international organizations, and which have opportunely benefited from the NRS label. In addition, the infrastructure built so far in the region is relatively limited. Indeed, Central Asia (excluding Afghanistan and Mongolia) encompasses only five countries, hosts only two of the six main land corridors and, of course, none of the two maritime routes listed by the B&R. Apart from Kazakhstan and Turkmenistan, which are highly dependent on hydrocarbons, the rapid growth of GDP (between 4% and 6% in 2019, according to Coface forecasts) starts from a still low level (GDP per capita below $7,000). Given the small populations of Turkmenistan (5.7 million inhabitants), Kyrgyzstan (6.3 million) and Tajikistan (8.9 million), interest in the exploitation and transport of raw materials, as well as transit with the west of the continent, outweighs interest in local markets.
Chinese action is being criticized
The Chinese initiative is also disrupted by the presence in China of 1.5 million Kazakhs (especially in the northwest region of Xinjiang), as well as other Muslim populations (notably Uighurs) also present in Central Asian countries. These people are affected by China’s policy of internment in ‘re-education’ camps. In response to the rise of anti-Chinese sentiment among the Kazakh population, China has recently expelled Chinese nationals who also held Kazakh nationality to Kazakhstan. This feeling may also have been fuelled by the fact that China favours the employment of Chinese workers in the investments it finances in the region. Finally, the distribution between the two countries of the water from the Ili River that supplies Lake Balkhach and the Irtysh River is a matter of debate. In addition, recent demonstrations in Kyrgyzstan indicate a rise in anti-Chinese sentiment among the local population due to the growing presence of Chinese and the plight of the Kyrgyz in China.
In addition to the tropism in terms of employment, critics add that projects carried out within the framework of the B&R favour companies and imports from China. Moreover, since FDI and grants are very much in the minority when compared to loans, even at low interest rates12, the projects lead to an increase in the external debt of the countries in the region. Indeed, at the end of 2018, Tajikistan’s external debt represented 76% of GDP and Kyrgyzstan’s 84%. China’s share accounted for about 30% of GDP for the latter, 16% in the public debt alone (half of the debt) of the former. These two countries have the highest debt burden due to the small size of their economies. Tajikistan has postponed the construction of the second unit of the Roghun hydroelectric power plant, and Kyrgyzstan has asked China to provide assistance – not a loan – for the continuation of a road construction project. For Turkmenistan, data is scarce, but commitments related to gas exploitation are certainly high. Depending on the source, the country’s external debt varies from $9 billion to $11.6 billion, or 21–27% of GDP in 2017. In Kazakhstan, at the end of 2018, external debt represented 92% of GDP and 6.6% for the Chinese part alone. The size of the economy and its own resources linked to its status of hydrocarbon producer make it possible for the country to self-finance or use other sources of financing for the construction of the infrastructure provided for in the Nurly Zhol programme, to which the BRI is subordinate. For Uzbekistan, external debt is half as high (48% of GDP) due to the recent opening of the economy, but it is progressing rapidly with the rapid development of infrastructure. China’s share represents 10% of GDP.
Beyond the debt burden alone, the important thing is that the project benefits the country. From this point of view, but also from the perspective of operation and maintenance, the quality of governance appears to be decisive in the choice of projects. However, governance still leaves much to be desired in several of the countries of the region. As Chinese loans and investments do not have to comply with World Bank and IMF criteria, China not being a member of the Paris Club of public creditors, the risk of an unfavourable cost/benefit ratio is significant.
The development of Central Asian corridors is subject to strong competition
While the development of new sources of raw materials in Central Asia, particularly energy, leaves little room for hesitation, the development of new transport routes that are uniquely for transit is not a given. First, there is competition from existing Indian Ocean shipping lanes, but also from air transport. Land transport (rail) between China and Europe via Central Asia is both more expensive (1.5 times more expensive, taking into account the subsidy paid by the Chinese provinces, which can reach 40% of the cost) and more than twice as fast (14 days instead of 40) than maritime transport. It is cheaper, but slower than air travel. This mode can therefore only satisfy certain types of goods that can be accommodated in this intermediate position. Secondly, it has to deal with the railways passing to the north through Mongolia, Manchuria, and Siberia, even if they are less direct. Moreover, within the region itself, several routes are possible, which is not without consequences, while all the countries of the region, because of their isolation in the middle of the continent, seek to reduce the very high cost of transport associated with their foreign trade. Thus, the corridor linking China and Europe through Kazakhstan and Russia, by far the most active and successful, does not favour the other Central Asian countries. On the other hand, the one linking China to the Middle East and Southern Europe via the Mediterranean serves, in addition to Kazakhstan, Uzbekistan and Turkmenistan. Its broadcasting capacity, particularly in Kyrgyzstan and Tajikistan, which are separated from China by high mountain ranges, is much stronger. But it requires the collaboration of third countries (Iran, Azerbaijan, Georgia, Turkey), as well as countries in the region that are still not used to working together. In addition, Kyrgyzstan and Tajikistan, and therefore the entire region, could benefit from an opening to India, Pakistan, Iran and the Indian Ocean via Afghanistan, if the latter’s security situation and Indo-Pakistani relations improve. However, between 2007 and 2016, the share of rail freight between China and Europe increased from 0.5 to 2.1% and 200,000 containers are expected to pass through Central Asia in 2019.
Regional cooperation, still insufficient, has recently improved
Some Central Asian countries depend on remittances and transfers from their expatriates in Russia
Russia hosts about 4 million expatriates from Central Asia whose incomes fluctuate with the Russian economy, the value of the rouble, and the priceofoil (thus, they fell by half between 2013 and 2016). Despite the imprecise statistics, remittances and transfers from these expatriates are important for Tajikistan (36% of GDP in 2018), Kyrgyzstan (37%), and Uzbekistan (13%). The labour markets of their economies, like that of Turkmenistan, are unable to absorb new entrants, of which there are many given the region’s demographic dynamism: the population is growing at 1.5–2% annually. In addition, Russia is highly attractive due to its much higher standard of living and wages, and even if there is diversification towards Turkey, Kazakhstan and South-East Asia, particularly for Uzbeks, Russia remains largely in the lead for new expatriations.
Russian cultural influence remains despite the advantage given to local culture
Despite significant emigration to the motherland in the years following the break-up of the USSR, a large Russian minority (25% of the population) still lives in Kazakhstan. It is concentrated in the north and east of the country. In fact, Russian is widely spoken in the country, but also in Kyrgyzstan (Russians are said to represent a little over 10% of the population), where it is also an official language. Moreover, despite the rise of Chinese scholarships, the number of Central Asian students enrolled in Siberian universities remains much higher than in China. As a corollary, the Russian media (radio, TV) remain very present and influential in these countries. However, Kazakhstan will join Uzbekistan and Turkmenistan in replacing Cyrillic with the Latin alphabet for its vernacular language. In this respect, it should be noted that the local populations speak Turkish-speaking languages and are therefore close, at least culturally, to Turkey. The Tajiks are distinguished by their language, which is close to Persian. For Turkey and Iran, both language and Islam are significant vectors in their relations with the countries of the region.
Russia has military bases, particularly in the fight against Islamist terrorism
Kazakhstan, Kyrgyzstan and Tajikistan are members of the Collective Security Treaty Organization (CSTO), which was established in 2002 under the auspices of Russia and host Russian military bases. In addition, Russia has the Baikonur space launch site in Kazakhstan until 2050 for an annual rent of more than $100 million. Nevertheless, no country in the region has recognised the annexation of Crimea or the secession of Abkhazia and South Ossetia, which shows the ambivalence of their feelings and illustrates their concern to spare all their partners. For its part, China seems to have a military base in Tajikistan located 12 kilometres from Afghanistan and probably intended to control the passage of radical Islamists and drugs. This presence can be explained by the Quadrilateral Cooperation and Coordination Mechanism (QQCM) in Counter Terrorism, which has included China, Pakistan, Afghanistan and Tajikistan since 2016. In addition, Russia and China are members, alongside Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, India and Pakistan, of the Shanghai Cooperation Organization (2001), whose purpose is security, economic and cultural. The main regional concern of these organizations is the infiltration of the Taliban and the development of radical Islamism from Afghanistan, but also within the region itself (notably in Uzbekistan and Tajikistan), and their control. With the exception of Kazakhstan, radicalism finds fertile ground in poverty, the plight of Muslims in Xinjiang and the strong policies of Turkmenistan, Tajikistan and Uzbekistan on freedom.
Finally, Russia presided over the establishment of the Caspian Treaty (2018). This legal framework should, at last, enable Turkmenistan and Kazakhstan to build a gas pipeline to export their gas more efficiently to Azerbaijan, Turkey and Europe. But, at the same time, it consolidates the domination of the Russian military presence by excluding non-riverside powers.