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Potholes and Bumps Along the Silk Road Economic Belt in Central Asia

TheDiolomat.com


Belt and Road-related problems could prompt Central Asian states to re-engage more seriously with other actors.

By Li-Chen Sim and Farkhod Aminjonov
Potholes and Bumps Along the Silk Road Economic Belt in Central Asia
Credit: Flickr

Central Asia plays a key role in China’s Silk Road Economic Belt (SREB) initiative, a key part of the larger Belt and Road Initiative (BRI). This is thanks to the region’s abundant natural resources, proximity to the less developed inner regions of China, and position along the overland route toward European markets. Going beyond the conventional depiction of Central Asian states as mere pawns in a game between great powers, we argue instead that the agency exercised by some Central Asian states has and will pose challenges to the grand design of their more powerful neighbor’s initiatives.

The Interest in Promoting SREB Projects is Mutual 

The Central Asian region is “central” to Beijing’s Eurasian ambitions to link China’s west to South Asia, the Middle East, and Europe, thereby reducing the country’s dependence on sea routes that are vulnerable to American maritime supremacy. For instance, the China-Central Asia-Western Asia Economic Corridor is being built to link China to the Arabian Gulf through Iran and the Aegean Sea/Piraeus Port via Turkey. Likewise, the SREB’s rail routes to Turkey’s Middle Corridor via Kazakhstan and the Caspian Sea considerably shortens travel time to the Middle Eastern and European markets.

Central Asia is also valuable in and of itself because of the region’s hydrocarbon and mineral resources, which Beijing perceives as integral to sustain its economic growth. With over half of its oil originating from the Middle East and over 80 percent of its imports arriving by sea, China is looking to land-based oil suppliers to diversify and enhance its energy security. Currently, Chinese companies control over a quarter of oil production in Kazakhstan. Almost all exports of natural gas from the region go to China via the Central Asia-China gas pipeline, which was constructed with Chinese loans. The region is also an important supplier of rare earth and other metals used in China to produce high-technology items such as solar panels and rechargeable batteries.

Additionally, Central Asia’s geographical and cultural proximity to China’s restive Xinjiang region informs Beijing’s focus on these states. With three of the six corridors of the BRI passing through Xinjiang, Beijing is hopeful that economic development will bring social peace and political stability to Xinjiang as well as its immediate western neighbors.

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As for Central Asia, its governments rely on Chinese loans as an economic tool to boost local development. Regional infrastructure is inadequate and outdated and local funds are scarce. Large- and small-scale projects within the SREB – roads, railroads, pipelines, industrial parks, and special economic zones – are expected to enhance connectivity and boost trade within the region and with the wider Eurasian continent. Consequently, the legitimacy of authoritarian regimes in the region will be strengthened. 

Besides, SREB-related loans are not conditioned on political, economic or human rights reforms unlike loans and outright grants disbursed by the EU, Japan, or multilateral lending agencies. They are hence more attractive to the authoritarian patrimonial regimes of Central Asia. Some of these funds are then channeled to regime supporters whose companies partake directly or indirectly in SREB projects.

Challenges to the SREB: The Regional and International Contexts

China-Central Asia trade doubled to almost $40 billion between 2007 and 2018 and China is also the leading foreign investor in critical sectors as energy, industry, and infrastructure. This unprecedented dependence on Chinese trade, investments, and infrastructure interconnectivity masks several risks for China and, by extension, for the Central Asian regimes. 

Lack of Transparency and Poor Governance

Some Chinese investment projects appear to have limited benefits for the wider population. They are accompanied by accusations of lax regulation and seem to be vehicles that allow local elites to capture SREB-related rents. According to Oliver Stuenkel, Chinese officials have privately acknowledged that up to 30 percent of their SREB investments in Central Asia are lost to corruption. China also promotes no-tender procurement, such as exclusive rights granted to the Chinese company TBEA to refurbish the Bishkek Power Plant for $385 million or the refurbishment by Chinese contractors of the Dushanbe-Chanak highway with a $300 million loan. Corruption scandals have dogged these projects.

Sovereign Debt 

China is the single largest creditor in some Central Asian states. A report by the Center for Global Development, which examined the debt implications of 67 countries with BRI-linked projects, indicates that two Central Asian countries — Kyrgyzstan and Tajikistan — are in the highest risk category. While taking on debt to finance infrastructure projects can boost local economies, too much debt is dangerous if it fails to boost local economies and generate large-scale revenues and returns to local budgets. Beijing is already being accused of colluding with authoritarian regimes to plunder resources with limited contribution to the country’s development. 

Limited Contribution to Local Economies 

report comparing projects funded by China and by multilateral partners found that 89 percent of contractors were Chinese and 7.6 percent were locals in China-funded projects, while 29 percent were Chinese and 41 percent were locals in those funded by multilateral partners. Due to the lack of strong local content requirements, local firms often get short shrift and the projects go to Chinese contractors and workers. For instance, Kyrgyzstan’s Osh-Sarytash-Irkeshtam and Bishkek-Naryn-Torugat roads, partly funded by China, were built by a workforce of 30 percent locals and 70 percent Chinese workers, with 60 percent imported raw materials. Consequently, benefits for the local economy are tempered.

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Sinophobia

Anger over elite corruption and concerns over the environmental impact of Chinese-funded projects have fueled anti-Chinese – and by extension anti-regime – sentiments among the population in the region. In early 2016, protests broke out in major Kazakh cities against attempts to allocate agricultural land for long-term lease since China was assumed to be the main beneficiary. More recently, in January 2019, an anti-Chinese rally described as “the biggest public protest to date in Central Asia against Beijing’s growing influence” occurred in Bishkek; protestors called for controls on work permits for Chinese citizens and on Chinese-Kyrgyz marriages and a reduction of Kyrgyz debt to China.

Playing off Great Power Neighbors

By participating in the SREB, Central Asian states hope to balance the demands of the region’s traditional cultural and security hegemon, Russia, against those of its economic hegemon, China. With both Moscow and Beijing intensifying the implementation of regional integration initiatives, this has opened up opportunities for wily Central Asian leaders to eke out some autonomy. For instance, instead of passively accepting China’s SREB funding, leaders in Kazakhstan and Kyrgyzstan have pursued negotiations with China to link local economic development visions (Nurly Zhol in Kazakhstan or Taza Koom in Kyrgyzstan) to the SREB. As for Uzbekistan, it has balanced the SREB-funded Kamchiq rail tunnel with soft loans from Russia for its first-ever nuclear power plant. 

Conclusion

Central Asian countries often appear as policy-takers within the SREB. SREB-related problems, however, could prompt Central Asian states to re-engage more seriously with other external actors. This would allow local authorities to extract concessions that are more in line with their development, political, and economic interests. Although the United States, Japan, India, and the EU are unable to match the funding offered by China, Central Asian countries should consider the alternative quality infrastructure programs they offer. The associated transparency and accountability may strengthen the capacity of Central Asian states to generate more productive and tangible returns on foreign investments, which will be assets to regime legitimacy and stability.  

Li-Chen Sim and Farkhod Aminjonov are assistant professors at Zayed University in the United Arab Emirates. They are specialists in the political economy of energy in Russia, the Middle East, and Central Asia. Their co-authored chapter, ‘Central Asia in the BRI: Policy-Taker or Policy-Shaper’ in Jonathan Fulton ed., Regions in the Belt and Road Initiative, will be published by Routledge in 2020.

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