from Asia Unbound

China’s Big Play in Central Asia

January 05, 2010

Blog Post

More on:

Russia

China

Asia

Turkmenistan

Kazakhstan

Photo courtesy of REUTERS/Mukhtar Kholdorbekov/Kazinform

Last week, a west-east pipeline from Xinjiang to eastern China began bringing Central Asian gas to energy-hungry Chinese consumers. The pipeline runs more than 8,000 kilometers. It spans 14 provinces, autonomous regions, municipalities, and special administrative regions, including Shanghai and Hong Kong. Most important, the pipeline is the first to supply overseas natural gas to Chinese consumers and is thus a significant milestone in China’s energy acquisition strategy.

But the opening of a west-east gas route also says something important about Chinese foreign policy, more generally.

The gas is being supplied from Central Asia, beginning in gas-rich Turkmenistan, with the pipeline then transiting Uzbekistan and Kazakhstan. Russia has had a near-hammerlock on Central Asian gas, so China’s new assertiveness in the region comes primarily at Russia’s expense. Indeed, in many ways, China’s emergence in Central Asia is the most interesting thing to happen in the region since the Soviet collapse and the emergence of independent states in 1991. And in the short-term, at least, U.S. and Chinese objectives are much more closely aligned than U.S. and Russian objectives.

Why?

Beijing’s principal goal is to advance Chinese influence at Russian and American expense—first, to stabilize and assure China’s western border, and second, to satisfy energy and related economic goals in a region long dominated by Russia. But China is leveraging commercial and economic tools, creating new connections that will broaden options in the region and strengthen Central Asian independence by reducing economic dependence on a single market, single consumer, single set of infrastructure links, and thus a single point of transit. This is in the U.S. interest.

The principal strategic problem in Central Asia is geography. Central Asia used to be integral to what passed for a global economy, but around the 17th century, the marginal cost of maritime trade dropped below the marginal cost of continental trade. Central Asia was pushed to the margins of the world economy. World Bank research shows that today, landlocked countries can face a growth deficit as high as 1.5 percentage points because transaction and other costs are so high. And so anything that reconnects the region—and reduces its dependence on a single point of transit— is to Central Asian economic advantage but also U.S. strategic advantage since it provides more choices and, thus, bolsters Central Asian independence and sovereignty.

Trade with China—and pipelines to China—serve that purpose. Thus China is helping to diversify Central Asia’s energy transport mix. And at least some of what China is doing is broadly consistent with the core U.S. objective of strengthening Central Asian sovereignty and independence by providing options, choices, and alternative opportunities. Plus China is creating new infrastructure that complements the recent U.S. emphasis on economic integration with economies to Central Asia’s south and east, not least by restoring continental trade links.

But four things about China’s role in Central Asia bear watching:

First, China is eroding Russian economic influence in interesting and dramatic ways. Energy is the best but not only example of this, since it both ends Russia’s near-monopsony on, for example, Turkmen gas and, in doing so, increases Central Asian governments’ bargaining leverage with Moscow.

Second, China’s commercial presence may, over time, erode the economic influence of certain indigenous elites, especially those with close ties to Russian industry, while empowering new ones.

Third, China is eroding the influence of nearly every other lender in the region, especially the International Financial Institutions. Chinese loans of $10 billion for Kazakhstan, $4 billion for Turkmenistan, and more than $630 million for Tajikistan have come without World Bank-style conditionality. And why would a Central Asian government look to the Bank or the International Monetary Fund for cash, when the cash is so readily available in Beijing but without the strings? Here, too, China is providing new options but possibly new bargaining power.

Fourth, then, China’s lending and commercial practices could erode the reform message Americans (and Europeans, for that matter) have promoted in Central Asia since 1991.

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