Central Asia: Beijing Flexes Economic Muscle Across Region
China, with billions of dollars invested in Central Asian resources, is making deals that regional leaders find hard to turn down. Beijing, indeed, has a clear strategy for Central Asia -- and it's working.
What does China see across its western border? Gareth Leather, a China expert for the London-based Economist Intelligence Unit, says the answer is obvious.
"Access to raw materials," Leather says. "As China's economy grows very quickly, demand for raw materials has shot up and Central Asia is obviously rich in a number of raw materials that China needs. So it is keen to put more investment into that region."
Central Asia is home to large, relatively untapped oil and natural-gas fields. Most are in Kazakhstan and Turkmenistan -- and Beijing has been quick to seize on export opportunites.
Already in the late 1990s, Beijing secured a deal to build a 960-kilometer oil pipeline from western Kazakhstan to China. The pipeline has started partial operation and when it kicks in fully in the next two or three years, it will carry some 20 million tons of oil annually. The cost of building the pipeline was $700 million and generally met the timetable set nearly a decade ago.
Importing Kazakh oil is part of China's plans to diversify both energy suppliers and import routes. That's because some 80 percent of China's oil imports currently transit the Straits of Malacca, a narrow shipping lane between Malaysia and Indonesia.
Leather says the Kazakh pipeline meets both countries' interests. "China has traditionally been reluctant to buy or to rely on the open market for some of its energy imports," he says. "So what it has been doing, is going into a country and investing in the infrastructure, which is needed to extract these raw materials.
"And so for the countries concerned, they are obviously very welcoming to Chinese investment because not only do they get a chance to sell their raw materials, but also the Chinese build the infrastructure as well and so they're seen as benefiting in two ways," Leather adds.
A Turkmen-China natural-gas pipeline is another major energy project financed by China in Central Asia. Eventually, the pipeline will stretch some 7,000 kilometers from eastern Turkmenistan to Shanghai. The agreement with Turkmenistan, which was sealed in 2006, also includes involvement by Uzbekistan and Kazakhstan, as the pipeline will transit those countries, providing revenue for both from transit fees.
China not only gets the gas it wants -- some 30 billion cubic meters annually for 30 years -- but the China National Petroleum Corporation also has a production-sharing agreement (PSA) to develop the Turkmen gas fields feeding the pipeline. That makes China the only country to have an on-shore PSA with Ashgabat.
Investment With No Strings Attached
China has been busy in other Central Asian countries, too.
In central Tajikistan, China's Export-Import Bank is providing a $300 million loan to help finance construction of the Zeravshan hydropower station. And China's Zijin Mining Group plans to invest some $100 million in a gold-mining operation in the same area.
China is also helping to finance construction of a railway from Uzbekistan through Kyrgyzstan to China.
Leather says that for the Central Asian states, working with China is more advantageous than dealing with demanding Western states and organizations.
He notes that Chinese "loans or infrastructure investments come with no strings attached. Previously, countries would be relying on institutions such as the International Monetary Fund, or places like the EU or the U.S. and these [loans and investments] will come with strict economical and political conditions. And they're quite keen to get Chinese investment, because they come with none of these diplomatic strings attached. So Chinese investment so far certainly has been very welcome in these areas."
And since production of oil, natural gas, and hydroelectric power is really just starting in the Central Asian states, Leather says those countries can see a long-term business partner in neighboring China.
"I think what you are seeing now is only the beginning. China's economy, although it might slow down compared to the dizzy heights that it's grown at in the past few years, is expected to continue growing strongly for the next 10, 15, 20, 30 years," Leather says. "And so this strong demand for energy is unlikely to go away anytime soon. And countries that are net energy exporters stand to benefit hugely from this."
Still, the picture of Chinese investment is not all rosy.
Beijing has done much to make itself an appealing partner, but the Central Asian states are still wary when dealing with their giant neighbor. None of them wants too much Chinese influence in their countries, which partly explains why they remain keen to work with Russia and the West -- both eager markets for Central Asian resources as well.
China, over the last few millennia, has annexed parts of what is today Central Asia -- a fact not lost on the people of the region. Their nations want China's help to achieve economic independence -- not to make them economically dependent on Beijing.
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