1.3 Chinese Economic Strategy in Central Asia

Economy may be considered as one of the main strengths of the People’s Republic of China and the main tool of diplomacy. The market economy with Chinese characteristics propagated by Deng Xiaoping a long before still exists and is gaining momentum. Last year China surpassed Japan and became the second largest economy after United States with the Gross Domestic Product (GDP) equal to $9 trillion according to estimates made by International Monetary Fund (IMF) and World Economic Outlook in 2013 [21]. Moreover, some analysts argue that China can become the largest economy in 2020. These arguments are not groundless. China is also regarded as one of the fast-growing economies together with another four countries Brazil, Russia, India and South Africa which form BRICS (an abbreviation made from the first letters of countries’ names). Chinese economy is the fastest of them with growth average rate of 10 percent over the past three decades [21].

China and Central Asia closely cooperated long time ago during the functioning of the Great Silk Road. The largest cities of Central Asia were developing and prospering along this trade route. In XIX century the region fell under the influence of the Russian Empire. From that time most of the economic links between China and Central Asia were broken and started restoring after the collapse of the Soviet Union.

In the context of the U.S.’s more active foreign policy in the center of Eurasia and Washington’s attempt to reformat the Central Asia and its contiguous regions politically, militarily, and economically within the framework of the so-called antiterrorist operation, the PRC leadership re-examined the region’s role and place in its foreign strategic priorities.

Whereas before, the economic component of Beijing’s Central Asian strategy was secondary compared with the security sphere and political-diplomatic issues, in the first decade of the new century, in the context of the national economy’s gradual upswing, the PRC shifted the accent to economic penetration into the region as a central element of its strategy. To solve this task, China made a choice in favor of dramatically fortifying its position in the national economies of the region’s countries by intensifying its project and investment activity and lending to the most important economic projects.

In particular, Beijing is actively granting the region’s countries targeted loans on privileged conditions at low interest rates and with long repayment deferment for implementing certain projects. China’s EXIM bank is mainly engaged in lending to the region’s countries, while the loans themselves are being assimilated primarily by Chinese companies.

Developing hydrocarbon resources is a key vector in the investment-project activity of Chinese companies in CA; the main targets are the oil and gas industries of Kazakhstan and Turkmenistan. For example, since 2003, China has greatly stepped up its activity in Kazakhstan. The numerous projects include acquiring several major shares in the oil and gas industry itself, building and operating the Kazakh-Chinese Atasu-Alashankou oil pipeline with a throughput capacity of 10 million tons a year, as well as granting loans and making investments in several other branches of the Kazakh economy. In 2006, China became just as active in Turkmenistan. Among the many projects, the following can be singled out in particular: development of the Bagtyyarlyk gas field (on the right-hand bank of the Amu Darya river) based on a production sharing agreement and building of the Turkmenistan-China gas pipeline with a throughput capacity of 30 to 40 bcm a year, via which gas will be delivered from the above-mentioned Turkmen field to the Chinese province of Guangdong in the eastern part of the PRC [22, p.112].

And although the oil and gas vector is still the main one for China’s economic activity in CA, diversification of economic activity is nevertheless also beginning in other branches. In particular, in addition to the oil and gas industry, China’s targets of interest in the region are atomic energy, hydropower, transportation, telecommunications, construction, nonferrous metallurgy, and the chemical and light industry. As a result, today, China’s economic presence is becoming perceptible, apart from Kazakhstan and Turkmenistan, in Tajikistan and Kyrgyzstan which do not have industrial supplies of hydrocarbons, as well as in Uzbekistan [22].

Such dramatic intensification of the project-investment activity of the PRC and Chinese companies in the CA countries has, in turn, had a powerful stimulating effect on the dynamics of Chinese-Central Asian trade. For example, between 2001 and 2008, the trade turnover between the PRC and Central Asia increased by approximately 13.6-fold, amounting to around $20.2 billion [22, p. 114].

In addition to the targeted and dynamic project-investment and credit policy pursued within the framework of the trade strategy and national plan of industrial development, Beijing is also taking active steps to form new mechanisms of interstate economic (primarily trade) interaction in the multidimensional format. In recent years, China has been increasingly pushing for development of the economic (particularly economic trade) component of the SCO.

The Business Council and Interbank Association began functioning within the Organization in 2005. The main task of these two substructures, in which China dominates, consists of efficiently coordinating the efforts of state, financial, and business circles aimed at subsequent development and introduction of projects in different spheres of the economy (mainly by means of trade stimulation).

Beijing is also continuing to put forward proposals for further stimulating economic cooperation within the SCO, primarily the formation of a free trade zone and creation of a corresponding regional transportation infrastructure. Practical implementation of these proposals, as China believes, will help to increase reciprocal trade in goods and services, cut back and gradually remove non-tariff barriers, as well as implement large investment projects in the region particularly in the raw material sectors. Today, in the context of the global financial and economic crisis, China is continuing to exert efforts aimed at further economic penetration into Central Asia [22].

On the tour of Chinese President Xi Jinping in Central Asia last year from 3-13 September the significant steps were made by People’s Republic to further improve economic ties with the states of the region. Discussions between President Xi and the nations’ leaders aimed to secure Chinese access to the abundant energy deposits and construct land-based transit routes to export these resources and transport Chinese goods to European markets.

During the ten-day tour, President Xi Jinping signed an estimated US $48 billion worth of investment and loan agreements, with a focus on the energy, trade, and infrastructure sectors. This figure includes export agreements totaling over 100 bcm of natural gas through a network of Chinese-funded pipelines.

Presently, bilateral trade between the Central Asian states and China is a hundred times greater than in 1992. Business with the Chinese accounted for an average 33.3 percent of trade in each nation. Foreign direct investment in Kazakhstan made by China since 2001 reached US$ 22 billion – and in Kyrgyzstan since 2011 –$131.7 million [23]. The bilateral trade turnover between Kazakhstan and China grew by more than 12% last year, reaching the level of $24 billion [24]. Total investments of China in Turkmenistan are about $5 billion [25]. These numbers are far much bigger than that of Russian economic assistance to Central Asian states.

On the whole, since the collapse of the Soviet Union, China has been gradually gaining economic access to the Central Asian region, which acquired special significance in the first decade of the 21st century.

Today, the PRC’s economic policy regarding the Central Asia is strictly subordinated to Beijing’s general strategy designed to ensure the most favorable external conditions for achieving China’s systemic breakthrough in terms of modernization, the country’s further sustainable economic growth, and its subsequent return to one of the global economic power centers. The PRC’s Central Asian strategy is aimed at gradually drawing the region into the orbit of its geo-economic influence, and this is no exaggeration. In so doing, it should be noted in particular that China is conducting this strategy cautiously and quietly, keeping an extremely low profile on its political ambitions in Central Asia.

One of the main indices of dramatic growth in the economic component of China’s Central Asian policy is the enormous increase in financial resources it is sending to the region. Whereas at the end of the 1990s, the PRC’s financial resources in Central Asia amounted to less than $1 billion, in the first 8 years of the 21st century, their volume increased more than 17-fold [22].

China’s economic penetration into Central Asia is mainly aimed at developing and importing raw mineral and energy resources and comprehensive stimulation of the export of Chinese goods; trade relations are already developing along the lines of “end products in exchange for raw materials.”

There are objective reasons for China’s economic presence in Central Asia, the main one being the absence of a single economic space (primarily industrial, as well as transportation, customs, and so on) and signs of economic integration in the region. Fragmentation of Central Asia’s economic space and the existing breakdown of the region’s single industrial and transportation infrastructure into national segments are preventing, to a certain extent, Chinese companies from engaging in long-term project and investment activity (for example, in the advanced processing of raw material); this is precisely why the region is regarded as a raw material appendage of the Chinese economy. As a result, the growing dimensions of China’s economic presence in Central Asia are giving the region’s countries the status of raw material sources. China is evidently quite happy with this state of affairs, while the Central Asian countries, in turn, are not striving to change their status. This can only be done by accelerating regional economic integration, about which much is being said, but little done.

It would seem that the format of economic relations developing is extremely undesirable from the viewpoint of China’s, and particularly the Central Asian countries’, long-term interests since the orientation of China’s economic activity in the region toward the production and export of industrial raw materials will promote resource depletion in the region’s countries and regression of the processing branches of industry. In that event, the PRC risks acquiring a vast destabilized space near its western borders and at least losing the position it has already gained in the region. Development of the situation according to this scenario will, in turn, have a negative effect on the socioeconomic situation in Xinjiang, which is developing largely due to Central Asia. In addition, the entire system of bilateral and multilateral security that Beijing has been carefully building for 18 years (since the disintegration of the Soviet Union) may collapse, and in the west of the PRC such problems as ethnic separatism and Islamic radicalism will become dramatically aggravated again whereby the global financial and economic crisis may also serve as a catalyst that provokes the above-mentioned problems.

In the opinion of Paramonov, Strokov and Stolpovskiy in order for China’s economic penetration into Central Asia to be mutually advantageous and equally meet the long-term interests of the PRC and the region’s countries, it would be wise for Beijing to put the main emphasis on building mechanisms of multidimensional and full-fledged economic cooperation within the SCO. For this purpose, it would be extremely desirable for the economic activity of Chinese companies in the region to take a qualitative leap by launching large projects on the advanced processing of industrial raw materials under the aegis of the SCO. This, in turn, will make it possible to step up economic reintegration in Central Asia and in the post-Soviet expanse as a whole and pave the way to turning the SCO into a real economic bloc and regional structure designed to ensure comprehensive security and stability in the Central Asian region and around it [22].

After taking closer look at the details and returning to the whole general picture we can say that Central Asian region in economic sense plays an important for People’s Republic of China mainly because it helps to develop the western parts of the country. The stability of Central Asia for PRC means the stability of Xinjiang and other regions located in the west. The New Silk Road strategy propagated by Beijing from recent times shows the significance of the region as the corridor connecting China and Europe. It is the way to export Chinese products to developed European markets. Therefore PRC is engaged in infrastructure and road construction in the region. Together with economic assistance expressed in low rate loans and investments China is actively promoting its culture. Confucius institutes existing in every country of the region teach Chinese to Central Asian youth. With every year the number of institutes’ students is rising. While the Confucian Institutes focus on language learning to prepare students to use Chinese in a business setting, teachers appear eager to stimulate their students’ interest in other aspects of China’s culture and history giving informal classes in tai chi, paper cutting and Chinese dressmaking [26].

Higher education in China also is becoming more and more attractive for students from Central Asia. For many young people in Kazakhstan, the major reason for such a “shift eastward” is the poor quality of national higher and secondary professional education. In many cases there is no or little correlation of the education with the labor market demands, leading to potential unemployment. Other reasons are high cost of education and living in cities as well as all-pervasive corruption.

Conversely, young people are attracted by the relatively low cost of university education in China, the growing international image of Chinese higher schools, chances to learn the Chinese language, the prospect of a prestigious occupation, and the higher salaries in Chinese and joint ventures. Surely, the geopolitical and geo-economic rise of China itself makes education in this geographically close country more attractive. Particularly, the higher education institutions of the neighboring Xinjiang Uyghur Autonomous Region are admitting more and more students from Kazakhstan and other countries of Central Asia. In recent years, China has become actively involved in global competition for students and promotes its universities in the world market both in South-South, and South-North directions. Its active promotion of educational programs and investment into the educational sector in Kazakhstan is considered part of China’s “soft power” policies in the Central Asian region.

Such educational preferences of region’s residents coincide with China’s plans to extend admission of foreign students. On June 7, 2012 during the Shanghai Cooperation Organization (SCO) Summit in Beijing, China declared its decision to deliver education to 1,500 specialists from SCO member-countries in Chinese universities over three years. Moreover, during the next 10 years, China will provide 30,000 state grants and will receive 10,000 students and tutors from its various international Confucius Institutes for education and advanced training [27]. This goal was confirmed during the first official visit of PRC Chairman Xi Jinping to Kazakhstan in September 2013.