Kapital: The Chinese Miracle
A Coterie
Financial Times has recently made an interesting publication on the shifts in the distribution of powers in Central Asia with respect to China. Raffaello Pantucci, a specialist on the region at the Royal United Services Institute, who authored the article said that, "This is China’s inadvertent empire. It’s a part of the world where they are clearly becoming the most significant geopolitical player. I don’t think they’ve given consideration to what that means in the longer term." It emerged that Chinese penetration of the region was due to the skyrocketing growth in the country's oil and gas consumption. The nearest region with significant reserves of these raw materials is Central Asia. Some data suggest that Chinese companies account for up to 25% of all Kazakhstan's oil and gas production while Chinese investment in Kazakhstan, Uzbekistan and Turkmenistan is almost eleven times higher than Russia's. The future changes in this balance are expected to be not for Russia's benefit.
"China has its own interests in the region. It is interested in Central Asian energy resources. The Chinese management tries to diversify supplis. At present, China imports between 70 and 80% of oil through the Strait of Malacca, which is controlled by the US Navy. Oil and gas transportation from our region is safe and is effected through land pipelines. In addition, it is possible that land pipelines may be extended to the north of Iran and further to the Near East in the future," Shyngys Nurlanov, political scientist, says.
Evgeny Vinokurov, Director of the Centre for Integration Studies, insists that China is interested not in everything, which is of interest to the EEU countries, and that competition between Russia and China should not be seen as absolute. In terms of transport, for example, China will do its best to promote "latitudinal" East-West corridors. It is less interested in "longitudinal" North-South corridors, which are of special importance to both Kazakhstan and Russia (the routes to Iran, the Near East and, in the longer term, India).
"China is
currently pursuing an impressive, proactive policy of economic expansion in Central Asian countries. Chinese foreign direct investment (FDI) is an important element of it, including the putting into practice of the Silk Road Economic Belt idea," the expert says. According to the EDB Centre for Integration Studies, as at the beginning of 2015 China's cumulative FDI in Kazakhstan totalled US $23.6 billion, while in Russia it was US $3.4 billion.
"The amount of Chinese FDI is impressive, but we should keep in mind that almost all investment by Chinese transnational companies (98%) are associated with the fuel sector - the production and transportation of oil and natural gas. Investment in other sectors, which are crucial to sustainable development of Kazakhstan's economy, is low. They do exist. In Kazakhstan, for example, two Chinese banks - the Industrial and Commercial Bank of China, and the Bank of China - have been operating since 1993. As at the end of 2014, their authorised capitals were US $58 million and US $36 million respectively," Vinokurov comments.
A "Velvet Glove"
Russia and China's attitudes towards Central Asia are often described as "soft competition." In other words, both sides know and understand their own and each others' interests in the region, but do not perceive them as a reason for an open conflict. China's policy towards the EEU is described by specialists as "adaptation to the changing environment." For example, recently China managed to sign an agreement on the establishment of a free trade zone with the Eurasian Economic Union and thereby derived maximum possible benefits from the current situation. In addition, China managed to reap all benefits from the worsening of Russia's relationships with Western countries, which made Russia more attentive to Chinese initiatives.
According to political scientist Kairat Bekov, the most remarkable case here is the agreement with Russia on the coordination of the development of the Eurasian Economic Union and the Silk Road Economic Belt. These are the reasons for China's engaging in joint policy with Russia to coordinate efforts in Central Asia. China tries by all means to emphasise that it always takes into account the Russian side's opinion with respect to Central Asian countries. The situation in the Chinese economy is not as good as many believe. The notorious market failures such as "middle income traps" come to the forefront.
"Some imperial (in the good, dimensional sense of the word) investment in all more or less liquid projects abroad makes many economists and political scientists speak of somewhat of a "Chinese world" phenomenon. The behaviour of Kazakhstan's monetary authorities, which after discontinuing Kazakh tenge's pegging to the dollar promised China in the first place that all investment contracts would remain effective, can evoke a negative reaction. Here, we shouldn't be tied to the chariot of, albeit strategic but, nevertheless, an investor, which pursues primarily their own profit and return on investment," Evgeny Tischenko, an expert, says.
The speaker states that Kazakhstan trusts fully the Chinese model of behaviour with dominating state regulation, which may also have its effects. Russia, obviously, insists on parity contacts in the Central Asian space and on some kind of labour distribution. Special investment conditions for enterprises in the areas of Russia and China's joint transborder efforts will be helpful in this case.
Therefore, it would be wrongful to see China's increased activity in Central Asia as an automatic reduction in Russia's influence. Here we observe a division of efforts where China occupies the niches in Central Asia, which Russia cannot fill because of limited economic opportunities.
"We should keep in mind that the Central Asian countries themselves, instead of choosing one country as a priority, will rather aim at balancing several centres of power," Kairat Bekov concludes.