MOSCOW - Wednesday, July 18, 2012 -
One trend that was manifested during the June 2012 Shanghai Cooperation Organization summit is China’s strengthening economic positions in Central Asia.
Chinese leader Hu Jintao announced that Beijing plans to lend Central Asian members of the SCO $10 billion “to support economic cooperation projects.” China’s aggregate investment in Central Asia now stands at about $20 billion. As the region’s transport and financial flows culminate in China, the country is set to become the biggest economic partner of the Central Asian countries.
Beijing is eyeing the fuel and energy complex as well as transport and communications projects. During the course of the SCO summit, Hu Jintao urged the organization’s members to step up their efforts to create a common transport infrastructure with road and rail networks, as well as to develop air links, telecommunications, and a single system of energy transportation.
Hu Jintao promised to organize the training of 1500 experts from member countries within three years, offer 30,000 scholarships, and invite 10,000 students and teachers from the Confucius Institutes operating in these countries to China over the next five years. The use of Chinese “soft power” is designed to consolidate earlier economic successes.
China already occupies a strong position in the Central Asian fuel and energy complex. Chinese companies control about a third of Kazakhstan’s fuel and energy complex. China’s largest economic project in the region is the construction of the Turkmenistan-Uzbekistan-Kazakhstan-China gas pipeline, the first section of which launched in December 2009. The pipeline’s capacity will initially be 40 billion cubic meters (bcm) per year, of which 30 billion will come from Turkmenistan and 5 billion each from Kazakhstan and Uzbekistan.
However, in November 2011 it was decided to increase the pipeline capacity to 65 billion cubic meters. When the pipeline reaches full capacity, Turkmenistan will be selling more gas to China than it sold to Russia before the crisis (about 40 billion cubic meters), which is expected to cause Turkmenistan to reorient its economic ties from the north to the east.
The bilateral agreements signed during the SCO summit are further proof of China’s plans to advance in Central Asia. Beijing and Tashkent signed a declaration on strategic partnership, an agreement on cooperation in economic and technological fields, and a memorandum on creating a joint industrial park.
Agreements with Tajikistan are more specific. The most important agreement was signed between the Tajik Aluminium Company (TALCO) and the national Chinese company producing building materials to build a $600 million joint cement factory in the Shakhrituzsky District of the Khatlon Region, and also included construction of the Dushanbe-2 thermal power plant.
All told, Tajik President Emomali Rahmon signed ten agreements to the tune of approximately $1 billion dollars during his visit to Beijing.
The vector of China’s economic interests in Central Asia has been shifting towards transportation infrastructure. The main routes since Soviet times led to the north, but now the situation is gradually changing. The key Chinese transport project is building the China-Kyrgyzstan-Uzbekistan railway which, via Turkmenistan and Iran, should give China access to the Persian Gulf and the Middle East. The project has been discussed since the 1990s, but only now has action been taken.
Construction of the railway was discussed during the early June visit to Beijing by Kyrgyz President Almazbek Atambayev, who met Hu Jintao and other Chinese officials. Kyrgyzstan has announced that drafting of the agreement to build the railway is in the final stretch. Kyrgyzstan managed to negotiate the 1520 mm gauge common to all post-Soviet countries and offer financing schemes, i.e. give the railway as a concession or establish a Kyrgyz-Chinese joint venture that would raise the money. President Islam Karimov of Uzbekistan agreed to building the railway during the course of the summit.
In addition to discussing the railway project, Beijing offered a loan to Kyrgyzstan to finance the Datka –Kemin power transmission line that will carry power from south to north, independently of Uzbekistan and Kazakhstan. The new power line will be linked to Kazakhstan’s power grid, whereupon it will transmit electricity to Xinjiang. China also backed a project to build a, 880,000-ton-a-year oil refinery in Kara-Balt that will refine Kazakh oil.
It is very evident that the Kyrgyz media stressed the contrast between Kyrgyzstan’s growing economic links with China and the stalled Russian economic projects such as construction of the Verkhne-Narynsky series of hydroelectric power stations, the Kambaratinskaya Hydroelectric Power Station, and Gazprom’s plans to strengthen its positions in the republic’s fuel and energy complex.
Massive Russian investment projects to build big hydroelectric plants in Central Asia, nurtured since the mid-2000s, have indeed been suspended. There are several reasons for that the halt, including a desire to avoid irritating the region’s “lower” countries, i.e. Uzbekistan and Kazakhstan, cooling relations with Dushanbe and Bishkek, the instability of local political regimes, and problems in recouping the cost of the projects.
At the same time, China’s strengthening economic influence on the Central Asian countries could eventually pose a problem. The economies of Kyrgyzstan and Tajikistan already depend heavily on the PRC. After Kyrgyzstan joined the WTO, it became a major regional hub for selling on Chinese goods. Selling Chinese consumer goods provides a livelihood for much of the population in Kyrgyzstan and is perhaps the key obstacle blocking the way to inclusion in the customs union of Russia, Kazakhstan, and Belarus.
Tajikistan’s economic dependence on the PRC is reaching a critical level. Its foreign debt is $2.1 billion (33.4 percent of gross domestic product), of which 40 percent ($900 million) is owed to the Chinese Export-Import Bank. Taking into account the latest agreements, China’s share in Tajikistan’s foreign debt could reach 70 percent.
(This article was first published in the RBTH.ru web site. See original article at http://rbth.asia/articles/2012/06/28/china_strengthens_position_in_central_asia_15652.html)