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China and the "New" Silk Road



3 April 2014

To the east of the confines of the current Ukrainian crisis, another geopolitical rivalry over former Soviet Republics is taking shape. China has been making quiet but significant moves to establish a "new" silk road through the Central Asian countries of Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan, and Kazakhstan.

When you travel from the modern airport into the ancient central city of Xi'an in China, you pass a roadside sign that proudly points towards the start of the ancient Silk Road. This route, supposedly running from what was then Chang'an (the capital `City of Eternal Peace' of the Tang Dynasty a millennium and a half ago) was the one along which the sought after treasures of silk and spices travelled, first into central Asia, then the Middle East, and finally to Europe. Historians these days have cautioned against thinking of one singular ancient route, and talk more of there being several. What is not in dispute is that from very early on flourishing trade links existed between ancient China and the outside world.

And it is these links that are being rekindled in the 21stcentury.

China's links through what is now called the "new" Silk Road to Central Asia really arose only two decades ago after the fall of the Communist Party in Moscow and the subsequent break-up of the Soviet Union. The creation of a raft of new countries in 1992, posed tough security issues for the People's Republic, itself still stabilising after the Tiananmen Square uprising of 1989. Overnight, it had to go from dealing with one vast country on most of its northern and north-western border to handling five new entities.

Its solution has been an effective one, and softer and far less unsettling than that of the Russian Federation's recent choice of flexing its muscles in its old geopolitical regional territory of the Crimea. Former President Jiang Zemin visited central Asia on the first ever state visit in 1994. His successor, Hu Jintao, revisited in 2009, and Xi Jinping in 2013, amongst the first major visits he made abroad. In the intervening decade and a half the economic and political changes that have affected both China and the inner Asian states have been dramatic, as has been the transformative impact on their relations.

The great imperative for China has been very simple: its increasing hunger for energy. In 1992, it was self-sufficient in coal and oil. Those days are long past. Central Asia, for Beijing policy makers, underneath the elegant language of Silk Road and all the romance that stirs up, is a source of resources and energy right on China's back yard. Economics lies at the heart of China's interests in the region, and for that to flourish there needs to be security and political stability.

Wherever we look in Inner Asia, in the five key states - Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan, and Kazakhstan - we can see a consistent story of deepening Chinese trade and investment involvement. Since 1992, in fact, trade has increased a staggering one hundred times. In that period, apart from Uzbekistan where China lies second, the People's Republic has become the largest trade partner of all the other countries. In 2012, this came to USD46 billion. Even with Uzbekistan, in 2013 trade climbed to USD2.87 billion, a 60 per cent increase over the year before.

The big ticket items in this trade are all energy related. Kazakhstan is oil rich, with the second largest reserves amongst the former Soviet Union republics. In September 2013, during his state visit to the region, President Xi Jinping, only six months into his new position as Head of State, signed a USD15 billion deal oil deal. This supplemented the USD4.2 billion deal between state oil company Sinopec and PetroKazakhstan in autumn 2005. The 1,300 kilometres Kazakhstan China pipeline will be at the heart of this, a joint venture with another of China's main state oil companies, China National Petroleum Company (CNPC). In addition to this is a further deal that Xi signed with his counterpart, President Nazarbayev for the Beineu Bozov Akbulak pipeline, to be completed in 2015, granting an 8 per cent share in the vast Kashagan oilfield. On top of all this, Xi also signed a deal for investment in a new gas pipeline to run from the southwest to the southeast and start working from next year.

Kazakhstan is not alone in receiving Chinese largesse. Turkmenistan has received investment from CNPC in the Central Asia China Gas Pipeline, running from what is currently the second largest gas field in the world. The pipeline will eventually create a network throughout not just the five countries already listed, but into Afghanistan, tapping into the largely unexploited resources that exist there. And to underline how important having good logistics and infrastructure is, in 2006 through Chinese China Road Company, there was an investment of USD300 million in the Dushanbe-Chanak toll road.

There are a number of significant new geopolitical factors that come from all this Chinese activity. The first is that for Inner Asian states, Beijing is offering an alternative to Moscow, and in the last decade these countries have been voting with their feet. For Kazakhstan and Turkmenistan now, in their worlds it is Sinopec and CNPC that rank more importantly than Gazprom on Russia. They are able to leverage off the historic dependency on political and economic support from Moscow. As they see the response by President Putin to the unrest in Ukraine, they are able to count their blessings that for them there is a permanent counterweight to Russian over-involvement in their affairs in the immense economy of China.

For China, there is a whole new zone of influence. Inner Asia has always been a security vulnerability, bordering the unstable autonomous region of Xinjiang which has experienced separatist unrest by Uighur groups as recently as 2009. For the central Chinese government, shoring up its north east border through benign and collaborative relations with the countries there means it can at least preserve its precious internal stability better. Xi Jinping must have had this need for the creation of as positive a relationship as possible when he signed a deal for 30 thousand students from Uzbekistan to study in China when there on his state visit in 2013. It must have also been behind the Anti-Terrorist joint exercises involving over 1000 Chinese military personnel held in Kazakhstan in 2010, and the joint terrorist drills in Kyrgyzstan in 2013 involving almost 500 police.

These exercises in 2010 and 2013 were held under the auspices of the Shanghai Cooperation Organisation (SCO). If there is one entity that personifies China's deeper interest in Inner Asia and its comprehensive involvement there, then the SCO is it. Originally established in 1995 as the Shanghai Five, but with Russia as a member and Uzbekistan outside the group, it signed treaties in 1997 and 1999 aimed at reducing military forces on border regions and creating greater trust. In 2001, with the addition of Uzbekistan, the group was renamed the SCO. The September 11thterrorist attacks in the USA that year added impetus to the group's anti-terrorist focus.

Geopolitically, however, the SCO managed to be one of the few major global groupings where the USA was not involved, and for a China seeking more strategic space this was a big advantage, and a reason why it gave the SCO such persistent and strong support. Allowing countries like Iran to attend from time to time as observers meant the reach of the group was vast, but it also operated as a way of including Russia within the conversation between central Asian countries and China.

On the surface, everything looks to be currently going well between China and its north western neighbours and their region. The sort of win-win outcomes that Beijing constantly says it is seeking seem to be coming off, with Chinese state investment pouring into central Asia, and Beijing offering a security partner. But there are also clear risks for the countries involved. For Beijing, there is the constant shadow of instability in its new found allies. Central Asian countries are beset with governance and corruption issues, with many of them being poor on observance of rule of law and human rights. The possibility of future unrest is therefore never far away, with the spectre of an uprising like that which occurred in February 2014 in Ukraine something that can never be discounted. Beijing's strategy to diversify its energy supply and not become over-reliant on one partner is sensible. The taps could be switched off very quickly.

But there is also the domestic view of China and its new found influence within the Central Asia block. Attending an event in Paris in 2012 where there was a government representative of one of the major SCO countries, I remember how warmly they spoke of their country's new friendship with China in public, but how much doubt they expressed in private. Historically, China and central Asia have had complex relations. There is sometimes a large cultural divide between them, and real issues about how far they really trust each other.

This issue of trust comes to the fore when contemplating the final withdrawal of US and its allied forces from Afghanistan. The idea of China seeking a greater security role in the region after this happens will create real tension, with many fearing that it is now not just in the South and East China Seas that Beijing is seeking to exert its influence and convert its new economic prominence into hard military and political clout. China will certainly not wish to be the same kind of actor as the US. But nor will it be relaxed about Afghanistan slipping into anarchy again. This will pose all sorts of questions for its strategists in Beijing who have to safeguard their clear interests in the region, but do so in a potential vacuum created by the withdrawal of America. They will probably look back a little nostalgically to the time when the US was mostly bogged down in the hard military action taken in Afghanistan since 2002.

Central Asia is likely to pose hard diplomatic questions for China in the years ahead, despite the flourishing trade links. These do create a whole series of opportunities for China to have new sources of influence in an area immensely important to it. But they also risk drawing China into political and diplomatic issues that it would resist being bogged down it. Not least of these is any potential for a face-off for influence with an increasingly insecure Russia. The new Silk Road therefore is likely to be a place of hard-nosed pragmatism rather than romance in the coming decade, and one which China will be very wary of travelling too fast along.