The Central Asia region is where Russia and China both collide in each other’s respective backyards with a varying pattern of both co-operating and competing. Recent Western media coverage has dressed this up as China attempting to reduce Russia’s influence in the region. But Russian and Chinese analysts believe that Moscow and Beijing are co-operatively squeezing Western countries out of Central Asia. The difference in assessments is the result of a lack of understanding of whether the Central Asian neighbours can really benefit from regional projects together. This article discusses this as well as comparing Chinese and Russian involvement in Central Asia.
Central Asia and China
All five Central Asian countries are participating in the Belt and Road Initiative and in the formation of the Community of Common Destiny, building a partnership with Beijing. The C+C5 regional platform continues to develop – agreements have been reached on regular meetings of heads of state and heads of relevant ministries, and the establishment of a permanent Central Asia-China secretariat is planned.
The parties declare common interests in the security sphere, as well as mutual support in matters of sovereignty, independence and territorial integrity, while trade, economic and investment partnerships remain the driving force behind China’s relations with Central Asian countries.
In May 2023, Beijing announced the allocation of more than US$3.7 billion for regional projects in trade, logistics, energy, green innovation, education and security. The China Development Bank, which is implementing 134 projects in the countries of the region, has increased its investments in Central Asia in trade, transport and infrastructure, agriculture, fuel and energy.
By the end of March 2023, China’s direct investment in Central Asia exceeded US$15 billion, while the cumulative turnover of completed projects has now exceeded US$63 billion.
Trade turnover between the Central Asian five and China reached slightly more than US$70 billion in 2022.
China remains a major trading partner of Kazakhstan, with trade turnover exceeding US$31 billion in 2022. The growth rate of this mutual trade volume allows Beijing and Astana to overcome the declared goal of US$35 billion in trade well before the target date of 2030. Over the past year, Astana supplied more than US$4 billion worth of oil and more than US$1 billion worth of natural gas to China, while agricultural goods shipments grew by 133%.
In 2019, agreements were signed to implement 55 Chinese investment projects worth about US$27.6 billion. One of the key aspects of cooperation was the construction of new transport and logistics corridors and related infrastructure.
The volume of rail transit through the Dostyk-Alashankou and Altynkol-Khorgos border crossings is expected to reach 24.5 million tonnes of cargo by the end of 2023, and 30 million tonnes by 2025.
China-Kyrgyz trade totalled US$15.5 billion in 2022, making Bishkek Beijing’s second largest trading partner in the region. While supplying the Chinese market with mineral ores, aluminium and tobacco products, Kyrgyzstan is claiming new niches by increasing shipments of fish, potatoes and pulses.
China is also Kyrgyzstan’s largest creditor, holding nearly 40% of its public debt as of 2022.
Kyrgyzstan intends to attract more Chinese businessmen by improving the business climate. Transit potential is emerging: a cooperation agreement was signed in Samarkand on 14 September 2022 on a project to build the Kyrgyz section of the China-Kyrgyzstan-Uzbekistan railway.
Turkmenistan acts as a major supplier of energy resources to the Chinese market. By supplying natural gas, Ashgabat can utilise China’s carbon neutrality agenda to ensure the conditions for growth of the national fuel and energy complex.
Turkmenistan’s trade with China totalled US$11.2 billion in 2022, and supplies China with more than 76% of its total exports.
Moreover, there are proposals to implement new projects that would increase natural gas supplies to China to 65 billion cubic metres per year.
China’s President Xi Jinping has characterised Sino-Tajik relations as requiring concrete results. China is a major trading partner and source of investment in Tajikistan. By the end of 2022, trade turnover between the two sides totalled about US$2 billion. This year, the sides expect a breakthrough due to the synergy of multiple agreements and about 50 joint investment projects.
The trade turnover between China and Uzbekistan in 2022 totalled US$9.8 billion. In 2021, China’s share in Uzbekistan’s foreign trade turnover rose to 17% of the total, while Uzbekistan’s aspiration to become a WTO member has created a demand for inbound foreign investment.
Chinese investments in the country’s economy are being redistributed in favour of agriculture, infrastructure and logistics.
Central Asia-China Summary
The PRC’s model of project implementation in Central Asia is a complex political-economic system, which is characterised by a nexus of ideological, political, economic and social factors, creating conditions for a comprehensive result in the long term. However, China cannot ignore Russia’s presence in Central Asia. Moscow sees the region as a zone of historically determined interests.
Central Asia and Russia
The legal framework for relations between Russia and Central Asian countries comprises more than 900 agreements, 70% of which relate to the economy.
Kazakhstan is a member of the Eurasian Economic Union (EAEU) along with Russia, meaning the two countries have a well-defined Free Trade Agreement. The trajectory of bilateral trade relations between the two countries has been positive for years. During 2021, trade volumes between Russia and Kazakhstan reached a new high of US$24.5 billion, almost 30% more than in 2020. The expectations in Astana and Moscow are that the volume of trade may reach US$30 billion by 2030. This positive trend continued in the first months of 2023. In the first quarter Kazakhstan’s exports to Russia increased by 39.2% and amounted to US$2.3 billion. Bilateral trade increased by 10.1% and amounted to US$6.1 billion.
The total volume of direct investments from Russia to Kazakhstan over the past 17 years has reached about US$20 billion. In turn, Kazakh investments in Russia have amounted to about US$6 billion. The governments of the two countries also pledged in June 2023 to implement more than 100 industrial projects worth US$22 billion. By the end of 2022, the gross inflow of foreign direct investment in Kazakhstan amounted to US$28 billion, which is 17.7% more than in 2021 (US$23.8 billion).
Kyrgyzstan is also a member of the Eurasian Economic Union (EAEU) along with Russia, meaning the two countries also have a well-defined Free Trade Agreement. The trade turnover between Kyrgyzstan and Russia has been increasing steadily over the past decade. In 2022 it increased by 40.3% reaching a record US$3.2 billion, the highest registered since 1994. Throughout 2022, imports from Russia to Kyrgyzstan increased by 18.8%, to US$2.3 billion, while exports of goods to Russia grew to US$964 million.
This trend is continuing. For example, in Q1 2023, bilateral trade increased by 26%. This development is somewhat surprising, given that in the first four months of 2023, trade between Kyrgyzstan and the member states of the Eurasian Economic Union (EAEU) reached US$1.1267 billion – some 7.6% less than in Q1 2022. This means that Russia has increased its overall EAEU share of Kyrgyz trade.
At the end of 2021, Russia became the main investor in Kyrgyzstan, investing about US$2 billion, corresponding to 36.1% of the total volume of foreign direct investment accumulated by the country.
Turkmenistan-Russia 2022 bilateral trade reached US$1 billion, marking a significant increase from 2021. There is continuing growth, as trade turnover between Russia and Turkmenistan for Q1 2023 increased by 10.4%.
Close ties have been established between Turkmenistan and specific regions of the Russian Federation – the Republic of Tatarstan, the Astrakhan and Sverdlovsk regions, as well as St. Petersburg. A significant portion of Russian-Turkmen trade consists of gas purchases. The 2019 contract stipulates that up to 5.5 billion cubic meters of gas are annually supplied from Turkmenistan to Gazprom. For Turkmenistan, this deal is beneficial mainly because it allows them to have more confidence in negotiations with other buyers, primarily with the Chinese.
As of now, dozens of large Russian companies operate in Turkmenistan, especially the companies from Tatarstan such as Tatneft, Vozrozhdenie, and KAMAZ. The latter, for instance, with its last contract was for two thousand vehicles, and became Turkmenistan’s leading supplier of trucks.
In general, almost 300 international documents have been signed between Turkmenistan and Russia. About 200 enterprises with Russian financial participation operate in the Central Asian country. According to the Russian leadership, by early 2023 more than 20 investment projects with the participation of Russian business in the amount of about US$3.5 billion are being implemented in Turkmenistan.
In 2022 the trade turnover between Russia and Tajikistan increased to US$1.4 billion, 18% higher than in 2021 and a record number for the past twenty years. Exports from Russia to Tajikistan grew by almost 20%, reaching US$1.3 billion mark, while imports from the Central Asian republic increased by 4%, to US$103.3 million. The increase has not been an isolated event, but rather a long-term development. In 2021, trade between Russia and Tajikistan increased by staggering 44.66% compared to the figures from 2020.
The volume of accumulated investments from Russia to Tajikistan over the past 14 years has reached US$1.6 billion, from which direct investments have exceeded US$900 million. Russian investments account for more than 16% of Tajikistan’s total, and have historically been directed to construction, communications, geological exploration, financial intermediation, healthcare, trade, energy and tourism.
Russia returned to first place in the list of Uzbekistan’s main foreign trade partners in 2022, with trade turnover between the countries increasing by 23% compared to 2021 – up to US$9.28 billion (18.6% of Uzbekistan’s total foreign trade turnover). It is also growing; bilateral trade turnover between the two countries in 2023 is expected to exceed US$10 billion. China’s 17.8% share of Uzbek trade meant it fell behind Russia to second place, while Kazakhstan (9.2%) was the third main trade partner.
Russia also has the highest rate of investment in Uzbekistan – 20.3% of total foreign investment valued at around US$2 billion. Russia tops China in this regard – whose investment made up 16.4%, and Turkiye in third place with a 10.1% share of the total foreign investment into Uzbekistan. Germany and the United States have Uzbekistan investments worth about 6% and 3.8% of the national total respectively. With Uzbekistan poised to join the WTO, and already in possession of a lucrative trade agreement with the European Union, it is easy to see why the country is of major interest.
China-Russia Cooperation in Central Asia
Since 2015, the pairing of the Eurasian Economic Union with the Belt and Road initiative, initially seen as a promising common economic space of Eurasia, has been ongoing. In 2018, an agreement on trade and economic co-operation between the EAEU and the China was concluded. This is a non-preferential FTA but allows for decisions to be made as concerns certain products and changes to tariffs as suits both parties.
In terms of regional security, Russia and China, within the framework of the Shanghai Cooperation Organisation (SCO) are implementing co-operation on counter-terrorism. The conditions for China’s interaction with the Collective Security Treaty Organization (CSTO) are taking shape. That provides a peacekeeping force that has been deployed to areas of conflict, including Tajikistan and Kyrgyzstan with a main focus being Afghanistan. The SCTO force is composed of troops from member states and is designed to provide stability and security in the region.
Russia perceives Central Asia as a near abroad, considering it not only from the point of view of political and economic interests, but also from a historical, cultural and humanitarian perspective. Moscow has opportunities for information influence on the countries of the region and acts as a recipient of labour migration.
The intersection of Moscow’s and Beijing’s interests is accompanied by factors that complicate the Russian-Chinese regional partnership.
Beijing has introduced its own political and ideological concepts into the regional agenda, such as the Community of Common Destiny, gaining the opportunity for their exclusive interpretation and shaping the framework of regional relations.
China’s foreign policy concept assumes long-term development goals, creating a holistic China-centric image of the future. In this context, the ongoing institutionalisation of partnership with Central Asia takes relations with the countries of the region beyond the formats and organisations that existed before. However, neither Moscow nor Beijing has so far declared an interest in pairing the C+C5 format with either the SCO or the EAEU.
In this regard, in a number of cases, Russia and China appear to be competitors, which allows us to speak of the formula for their relationship in Central Asia as competitive cooperation, where Moscow and Beijing have opportunities for interaction, but perceive the prospects for partnership with the countries of the region in different frameworks, thus limiting the potential for synergies in cooperation.
What would have been to Moscow’s benefit from Beijing’s projects in Central Asia has now been constrained by the risks of secondary sanctions imposed by Western countries on countries friendly to Russia.
A related problem is the reduction of Russia’s transit potential. In 2022, transit decreased by more than 30%, with no noticeable recovery in the new year. By contrast, the trans-Caspian route of China’s Belt and Road Initiative showed some growth in 2022.
These limitations, however, do not mean that Russia and China’s cooperation in Central Asia is problematic, as the SCO and the EAEU are promising platforms for cooperation, and especially so under the new geopolitical changes.
Russia and China positively assess the experience of the SCO and the EAEU, noting the possibility of pairing them with other Eurasian formats of interstate cooperation. As a consequence, the emerging C+C5 group could theoretically be paired with one, or both of these organisations. There has already been discussion concerning an amalgamation of the SCO with the EAEU and also with the BRICS grouping.
The recent New Delhi Declaration of the SCO describes the organisation’s broad agenda: from politics and security to trade and economic and investment relations and environmental issues. The multifaceted nature of the SCO creates opportunities for aligning the interests of Russia and China. Given the prevalence of Moscow’s and Beijing’s economic interests in Central Asia, the two sides can boost the SCO’s trade and economic development, which is expected to be supported by other members of the organisation.
Concerning the EAEU, in May 2023, Chinese President Xi Jinping stated his hope for a successful pairing of the Eurasian Union with the Belt and Road Initiative. The amalgamation of the Eurasian Union and the BRI could be realised through the development of a partnership within the SCO. This implies that a broader Free Trade Agreement could be possible, including members of the SCO. This would introduce a trade area that includes China, Russia, India, Iran, Pakistan as well as the five Central Asian nations.
Russia and China hold the key to a possible solution to the problem of the SCO identity and the development of a pan-Eurasian economic space. Will they use it?
Source : Silkroadbriefing