BIWEEKLY BRIEFING         Wednesday/April 11, 2001

CHINA CONQUERS CENTRAL ASIA THROUGH TRADE
Niklas Swanström
China increasingly desperately seeks for new markets for its energy resources and trade needs. This has created a need to expand both southward towards ASEAN and westwards towards Central Asia. The Chinese expansion westward has developed relatively unchecked by other states and China has the potential to dominate the weak Central Asian economies and fill the power vacuum that has emerged since their independence in 1991 and the Russian disarray. This is likely to establish China as the foremost player in the Great Game and the initiation of the eventual Russian departure.

BACKGROUND: China has an increasingly important position in the Central Asian region, not in military terms in which Russia still dominates, but in the financial realm. Chinese investments have increased rapidly from 1991, when the Central Asian states were recognized by China, to an all-time high in 2000-2001. China’s position in the regional oil industry and the building of pipelines from the Central Asian states, especially Kazakhstan, has been the most noticed example of this trend. The China National Petroleum and Natural Gas Corporation, CNPC, is one of the most important investors in Central Asia. CNPC has gained control over several important oilfields in the region. Beijing has also singed a multi-billion dollar deal with Kazakhstan to build a 2,500-kilometer long pipeline over the next six years. These very important investments in Central Asia and the impact this will have on regional infrastructure are fundamental for the economic development of Central Asia. The Chinese pipelines also serve the purpose to lessen the dependence from Russia and western governments for transport routes for Central Asian oil and gas.

The investments are not only limited to the oil and gas sectors, general trade has increased. China has granted several Central Asian states loans in Renminbi to buy Chinese goods. This has been especially important in Kyrgyzstan, Tajikistan and Kazakhstan. The Chinese Ministry of Foreign Trade and Economic Cooperation and the Yalian China Commercial and Trade Center have established commercial centers in several cities in Central Asia with the specific purpose to increase trade between China and the Central Asian states. Russia has very few possibilities to meet his onslaught of Chinese investments and trade since Russia itself have severe economic problems and can not assemble the billions of dollars it would need to compete with China.

China is also a heavy investor in the transport sector, which Russia traditionally controlled. China has initiated the building of a second European rail link through Kyrgyzstan, Uzbekistan, parts of Middle East and ending up in Rotterdam on top of the overall improvement of the transport sector. China and Iran have moreover initiated talks to construct a pipeline network that could carry oil from the Gulf to the coast of China. Interestingly, all these initiated and proposed cooperation attempts exclude both Russia and the United States.

IMPLICATIONS: The effects of these Chinese activities in Central Asia in the long term undermine the Russian position in the region, and to some extent this could lead to the initiation of a Russian retreat in the ‘Great Game’. This is due to the Russian inability to meet the Chinese investment wave in the financially weak Central Asia; in addition, the U.S. has so far not indicated any political will to meet the Chinese challenge. The gains for the Central Asian states are apparent: they will both limit the Russian control over the region and gain from the prosperous trade with China. The drawback for Central Asia is that if China continues to increase its investments and the U.S. fails to meet the challenge, Central Asia could eventually end up exchanging one overlord, Russia, for a new one, China. The Chinese investments and trade attempts are crucial for the region’s development, and are followed by a inflow of ethnic Chinese merchants to a degree that the latter could control the economy in a near future if this trend is left unchallenged.

The ‘Sinofication’ of the Central Asian economy has gone so far that the Central Asian states have become dependent on Chinese investments, and Beijing has in turn been able to dictate the Central Asian states’ policy towards ‘terrorists’, i.e. Uighur rebels from Chinese Xinjiang. Central Asia’s economic dependence on one state is increasing: the only existing competition is in the oil and gas industry, but in the ordinary economy Chinese merchandise dominates.

CONCLUSION: It is apparent that China has started to dominate trade and investment in the Central Asian economies and is increasingly determined to dominate the Central Asian oil and gas business. This would not only make China the most important economy in the region but could also make it capable of strongly influencing both the foreign and domestic policies of Central Asian states to an increasingly high extent. Unless Russia, who has little economic potential, or the U.S., who has an indecisive approach to the region, change their policy toward Central Asia, China will dominate the regional economies in a relatively short time.

Beijing also has made its way into the only area that Russia has had control over, namely military cooperation. Military cooperation and sales of arms has been initiated with all Central Asian states. This incursion in to Russia’s monopoly signifies the beginning of the end of Russia’s Central Asian dominance, unless something changes in Russia. If Moscow would loose its political and military control in the region it would not only be a severe blow to Russia’s international prestige but also threaten one of Russia’s most important market for weapons, Central Asia and its neighbors.

AUTHOR BIO: Niklas Swanström is a researcher at the department of Peace and Conflict Research at Uppsala University, Sweden, specializing in Chinese foreign policy and conflict management in the Asia-Pacific. He also heads the Stockholm-based consultancy firm Asian Analyses.

Copyright 2001 The Analyst
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