EurasiaNet Business & Economics - China Seeks to Bolster Its Economic Profile in Central Asia

BUSINESS & ECONOMICS

CHINA SEEKS TO BOLSTER ITS ECONOMIC PROFILE IN CENTRAL ASIA
Morris Rossabi 8/14/00

The People’s Republic of China is taking a growing interest in improving economic relations with Central Asian states. Indeed, there are indications that China harbors aspirations of replacing Russia as the dominant economic force in Central Asia, thus placing Beijing in better position to address its domestic security concerns.

Top Chinese leaders made several visits to Central Asian states in July, underscoring China’s search for new economic opportunities. During visits to Tajikistan and Turkmenistan, Chinese President Jiang Zemin signed agreements to strengthen security ties and bolster trade. Meanwhile Vice President Hu Jintao traveled to Kazakhstan in late July for talks on the construction of a proposed 3,000-kilometer (1,800-mile) oil pipeline. The project, which was first proposed in 1997, would cost an estimated $3 billion.

Already, China has made considerable investments in Central Asia. In Kazakhstan, for example, China’s direct foreign investment reached $1.1 billion in 1999. Meanwhile, Beijing’s Ambassador to Uzbekistan, Li Jingxian, indicated that China is eager to create new opportunities in Central Asia. Speaking specifically about Uzbekistan, Li said in an interview broadcast July 30 on Uzbek television: "It is important � to look for new forms of partnership. I can suggest two most promising ones: attracting Chinese investment in the Uzbek market, and [China’s] taking part in bids announced by the country."

An examination of China’s economic relations with Mongolia may shed light on Beijing’s economic intentions in Central Asia. China’s relations with Mongolia in the 1990s attest to its concern with the economy. And China’s growing economic influence has been the key to its political successes in Mongolia.

In 1989, total trade turnover between the two countries amounted to $24.1 million, but by 1999, it had climbed to $285.8 million. Also by 1999, 58.1 percent of Mongolia’s exports went to China, and China provided 15.1 percent of Mongolia’s imports. As of 2000, China has 413 of the 1,252 joint ventures in the country and supplies more than 25 percent of the foreign investment in Mongolia. The pace of such economic relations has quickened, particularly after Russia’s default on its loans in August of 1998, an indication of the weakness of the Russian economy. For example, trade turnover skyrocketed from $176.7 million in 1998 to $285.8 million in 1999. A major factor in the dramatic boost in trade resulted from the Mongolians’ dispatch of copper concentrate, their most important export, to China, not Russia, for refining.

The policies of Western and international agencies have perhaps inadvertently facilitated increasing Chinese economic leverage over Mongolia. Their insistent demands for privatization have created opportunities for Chinese businesses to bid for and take over Mongolian companies, particularly because there have been almost no restrictions on the sale of national assets to foreigners.

International pressure, as well as the ardent support of Mongolian proponents of the pure market economy, has resulted in the elimination of nearly all tariffs on imported commodities, as of May 1, 1997, and in the subsequent flooding of the market with cheap Chinese goods, subverting local products and manufacturing. For example, Chinese traders have taken advantage of the Asian Development Bank’s insistence on the elimination of a Mongolian ban on the export of raw cashmere. Chinese companies have been able to outbid Mongolian cashmere processors for the unprocessed cashmere, damaging the Mongolian processing industry. The imposition of such pure market strictures on the weak Mongolian economy has made it vulnerable to the State-supported Chinese economy. A colonial economic relationship has developed, with Mongolia exporting raw materials and importing Chinese finished products. In light of these developments, it may be time for these international agencies to re-think their economic strategies concerning Mongolia.

As they went about quietly gaining considerable economic leverage in Mongolia in the years immediately following the Soviet collapse in 1991 , Chinese leaders downplayed political and military relations. In recent years, however, China has succeeded in promoting its major foreign policy objectives in its dealings with Mongolia. In doing so, Chinese leaders have had to contend with lingering tensions in bilateral relations. Lingering hostility among Mongolians stems in part from the exploitative rule of Qing dynasty emperors from 1691 to 1911. Animosity also derives from the Soviet-Mongolian alliance that challenged China during the 1960s and 1970s.

China’s main political objectives vis a vis Mongolia are connected with security, especially concerning the issue of territorial integrity. Beijing has largely been able to prevent Mongolian government support for Inner Mongolian nationalism, or "splittism." In December of 1998, Mongolian President N. Bagabandi visited Inner Mongolia and, echoing his government’s line, stated that "he was impressed with China’s efforts to protect the culture and education of the Mongolian minority," according to the Economist Intelligence Report.

China is also anxious to prevent Mongolian support for the Dalai Lama, one of the Mongolians’ spiritual leaders, and to avert the use of Mongolian territory for military or intelligence purposes by foreign powers (including the United States). The Mongolian government has, on several occasions, permitted the Dalai Lama to visit the country, but has portrayed these trips as private, non-official meetings with Mongolian Buddhist leaders. Finally, all Russian troops have been withdrawn from Mongolian territory, and though the United States appointed a Defense Attaché to its embassy in Ulaanbaatar in September of 1999, and its military commanders have met with Mongolian counterparts, no American troops or weapons are in the country.

Recent trends in Sino-Mongolian relations appear to confirm the views of present and future Chinese policies in Central Asia, as assessed in Rapprochement or Rivalry? Russia-China Relations in a Changing Asia, edited by Sherman Garnett. The authors in the Garnett volume agree with the conventional wisdom that both China and Russia seek to avert instability and ethnic separatism or "splittism" in Xinjiang and Central Asia. They also note that the decline of Russian military and economic power and Russia’s possible inability "to police its side of the border" may compel China "to do the job." Abiding by the Marxist view that economics dictates politics, the Chinese leadership has apparently decided to rely on commercial and financial, rather than military or political, means to initiate "a more assertive � stance in Central Asia."

Editor�s Note: Morris Rossabi has recently completed a lengthy study of Sino-Mongolian relations since 1986. This article is derived from that study.

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