China’s Growing Economic Linkage with Central Asia: How India May Look at It
by Ramtanu Maitra on 16 Oct 2013 1 Comment

A cascade of economic and trade agreements that followed Chinese President Xi Jinping’s September visit to several Central Asian nations indicates the increasing interest of Beijing’s leadership in enhancing its economic and infrastructural linkages with countries adjacent to its western borders and thereby taking an important step to circumvent naval chokepoints and hedge against risks of naval blockades or embargoes. Over the years, the success of plans made by Xi and the Central Asian nations will ensure Beijing easier access to these vital sources of energy to bring over to the sparsely populated and arid western part of China. Their success would also advance Beijing’s longer-term vision of making western China a significant population center and thus creating a necessary security barrier.


The list of agreements that were signed during Xi’s visit is impressive, to say the least. Also interesting to note is the open-arms welcome that Xi received from Central Asian leaders - Kazakhstan’s Nursultan Nazarbayev, Kyrgyzstan’s Almazbek Atambayev, Turkmenistan’s Gurbanguly Berdymukhamedov and Uzbekistan’s Islam Karimov - despite the fact that these leaders depend on Moscow for their political survival.


China’s Inroads


“China is the biggest trading partner of four of the region’s five countries (the exception being Uzbekistan). During Mr. Xi’s trip, Chinese state media reported that trade volumes with Central Asia topped $46 billion last year, up 100-fold since the countries’ independence from the Soviet Union two decades ago,” The Economist of London noted in “Rising China, Sinking Russia” in its Sept. 14 issue. India, of course does not belong to this league, at least not as of now. Its own trade volume with these “stan” nations has not yet reached the $500 million mark annually, with Kazakhstan (India’s largest bilateral trading partner) accounting for almost half of that total.


Since India has neither a direct land link with the Central Asian countries nor the financial strength to match what China has achieved over the years, it is unlikely that in the foreseeable future New Delhi will be a serious economic player in Central Asia as China and Russia now are. Moreover, unlike China, which launched its “Going Out” strategy in 1999, India has never formulated any long-term economic strategy in the Central Asian region. Because of India’s influence in Afghanistan, and the recognition of Afghanistan as a strategic peg, India’s attention toward the “stans” has remained mostly security-centric.


By contrast, the Chinese strategy toward Central Asia comprises outgoing foreign direct investment (FDI), engineering and construction projects abroad, and the export of Chinese goods and services. It couples resource acquisition and trade diversification with opportunities for Chinese companies to increase their international presence and competitiveness. Under this strategy, China has been willing to give these “disconnected countries” a much-needed hand in developing their infrastructure with few strings attached. Some call it the “Resource for Infrastructure” strategy. At another level, China considers its western border abutting Central Asia and Afghanistan a potential conflict zone because the Caliphate-seeking jihadis, with the help of Saudi Arabia, Pakistan, and an international cartel-controlled drug mafia, prowl freely there, posing a threat to China’s periphery.


China’s Trump Card: Transport Infrastructure


So India can have little say on how China conducts itself in this part of Asia since there is little occasion for contact between the Indians and Chinese there. Nonetheless, what may warm the cockles of some Indian hearts is the fact that in seizing an opportunity to utilize Central Asian energy reserves, China may put the Karakoram Highway-Gwadar link through Pakistan - a project that has caused much consternation in India - on the back burner. This could mean that in its quest for continuing economic growth, China’s dependence on Pakistan will remain marginal. That, however, does not mean that China will cease to look at Pakistan as a friendly neighbor or will ever abandon the project.


Years before President Xi Jinping made his historic September foray into Central Asia, China was quietly associating itself economically with the region. The most notable achievements were the two Chinese-financed infrastructure projects completed to bring in oil and gas from Turkmenistan and Kazakhstan. First, the 1,833-km natural gas pipeline that runs from Turkmenistan through Uzbekistan and Kazakhstan into China’s Xinjiang SAR; and then a 2,228-km oil pipeline that runs from Kazakhstan’s Caspian Sea shores, entering China just north of the gas pipeline. Rail is used to deliver some Kazakh crude to export terminals on the Black Sea (Novorossiysk and Odessa) and directly to China.


Kazakhstan’s most important mode of oil transport is its pipeline network allowing the country’s oil to reach Europe, and now China. The main pipeline serving China, jointly developed by the China National Petrochemical Corporation (CNPC) and KazMunaigas, runs from the Atyrau port in northwestern Kazakhstan to Alashankou in China’s northwest Xinjiang region. In 2010, this pipeline exported just over 200,000 barrels of oil (bbl) to China.


Further in 2010, the transnational Turkmenistan–Uzbekistan–Kazakhstan–China pipeline was brought into operation delivering some 15.2 billion cubic meters (bcm) of gas to the Chinese economy. On a request from China, agreements have been reached to increase this pipeline’s capacity to 55 bcm per year.


As a step to deepen relations and goodwill, the Chinese government has also signed an agreement to build a paraxylene complex with Kazakhstan. Paraxylene is the most important aromatic hydrocarbon today and an important feedstock for manufacturing fibers and plastics (“Chinese Inroads into Central Asia: Focus on Oil and Gas” by Aditya Malhotra, Journal of Energy Security, Nov. 20, 2012).


China’s leading information and communication technology firm, Huawei, provided the communications network for the 2,228-km oil pipeline that runs from Kazakhstan’s Caspian Sea shores, entering China just north of the gas pipeline. Smaller but notable projects also include the extension of power lines to link the northern and southern electric grids of mountainous Kyrgyzstan, and construction of the Shar-Shar tunnel and power stations in impoverished Tajikistan (“China’s Developing World Edge” by Richard Ghiasy, Stephan Mothe and Frances Pontemayor, The Diplomat, Sept. 13, 2013).


The deals clinched by Xi will see Turkmenistan - already China’s largest foreign gas exporter - triple its gas supplies to China from last year’s 21.4bcm to 65bcm annually by 2020, exceeding the earlier request of 55bcm.


Spreading the Wealth


As the Central Asia–China pipeline expands to absorb the added capacity, Kyrgyzstan (which lacks its neighbors’ oil and gas deposits) will also benefit. Under a deal signed during Xi’s visit on Sept. 11, Kyrgyzstan will earn $40 million in transit fees annually from a pipeline extension crossing its territory. The windfall will come in handy because Bishkek loses an annual $60 million in lease payments from the US airbase at Manas when it closes next July. China has agreed to provide cash-strapped Kyrgyzstan with some $3 billion in credits for energy and infrastructure projects, with $1.4 billion of that going to build the pipeline extension through Kyrgyzstan to China. Meanwhile, in Kazakhstan contracts worth $30 billion were signed, and in Uzbekistan agreements totaling $15 billion were reached (“Central Asia: China Flexes Political and Economic Muscle,” EurasiaNet’s Weekly Digest, Sept. 12, 2013).


At the center of China’s energy agreements lies its emphasis on transport infrastructure development in the region. Investing as much as 9 percent of its GDP in infrastructure in the 1990s and 2000s, China has laid the foundations for its current success. At its peak between 2001 and 2006, China spent more on roads, tracks, airports and other fixed assets than had been spent in the previous 50 years put together. Nearly every corner of the country is being linked, regardless of soil, latitude or climate conditions; high-speed train lines already connect most of the major urban hubs, and highways will connect more than 90 percent of cities with a population of more than 200,000 by the end of 2015. In that same year, China’s total highway length is expected to surpass that of the United States. As of this year, China’s mobile phone users reached a staggering 1.11 billion; and with an Internet penetration rate of 42.1 percent, it has the world’s largest online population (“China’s Developing World Edge” by Richard Ghiasy, Stephan Mothe and Frances Pontemayor, The Diplomat, Sept. 13, 2013).


As a result of such success in its domestic infrastructure development, China is now keen to tie up its domestic transport infrastructure with the transport infrastructure of adjoining nations. Noteworthy is the fact that the transport infrastructure in some of those adjoining nations is not only inadequate, but altogether non-existent. That is the reason why, in July, 2013, when China’s Foreign Minister Wang Yi was in Bishkek, he assured his Kyrgyz counterpart, Erlan Abdyldaev, that Beijing would continue to provide Kyrgyzstan with “all kinds of support” for infrastructure projects. Wang stressed then that Chinese money provided for Kyrgyz projects would not carry any “additional conditions” and would be loaned “on the basis of equal partnership.”


Chinese investors are currently involved in construction of the Kemin-Datka electric power line and reconstruction of the Bishkek-Torugart highway. Negotiations are also under way on Beijing’s possible participation in the construction of a China-Kyrgyzstan-Uzbekistan railway line and the building of a hydropower station on the Saryjaz River in Kyrgyzstan’s north.


If they materialize as envisaged, these transport corridor developments would benefit a large section of the Central Asian population, and may even reduce the conflict potential that exists in the region. However, it should also be noted that along with the transport corridor-related overall development, Central Asia and western China will need water - and plenty of it. China’s ability to relocate some of its population from east to west will succeed only if it is able to bring water to the parched part of China and Central Asia.


A Question Mark on the Karakoram Highway-Gwadar Corridor


While Central Asian oil and gas will supplement China’s growing thirst for energy, China will make sure that it acquires greater access to Middle East and North African oil and gas, as well. It is unlikely that Beijing will officially drop the concept of bringing in oil and gas through Pakistan by linking Gwadar port in southwest Baluchistan province and the Karakoram Highway.


Nonetheless, China keeps a watchful eye on the growing jihadi activities and anti-China activities taking place within Pakistan. China took note, for instance, when at least 10 Pakistani soldiers were killed and four others injured in July 2013 following a militant attack on a checkpost of coastal guards near Gwadar. And back in 2004, Chinese President Hu Jintao and Premier Wen Jiabao urged Pakistani authorities to take effective measures to ensure the safety of Chinese citizens in Pakistan after a car bomb killed three Chinese and injured nine others. And then, in 2009, China announced it had shelved its multibillion dollar coastal oil refinery project in Gwadar.


These are indications that China realizes that Pakistan’s internal security situation has reached a point in which full-fledged development and sustainable use of the Karakorum Highway (KKH)-Gwadar link is fraught with danger. Recent developments underscore the threat. On June 23, a faction of the Taliban stormed into the Nanga Parbat base camp and shot dead 10 foreign climbers. This was the first such attack on foreigners in an area of the country popular with tourists and widely considered safe to travel. Beijing was clearly perturbed that three of the climbers killed were Chinese, and called on Pakistan to safeguard Chinese citizens in the country (“Karakoram Highway: China’s Treacherous Pakistan Corridor” by Adam Hodge, The Diplomat, July 30, 2013).


At the same time, the province of Baluchistan is the base of entrenched insurgency, secession and sectarianism. China cannot ignore the fact that to run a transport corridor through this province is perilous. China cannot ignore also the large-scale killing of Shi’a that took place in the province in recent months, making it a hotbed of Taliban operations. There are also indications that Pakistani intelligence is directly, or indirectly, involved in those killings.


Beyond that, as Adam Hodges of The Diplomat points out, China has bigger problems in wanting to use Gwadar port as an economic base, problems that ironically lie more than 2,000 km away, high in the cloud-tipped Karakoram mountain range in northern Pakistan. The success of Gwadar as a Chinese trading post hinges on the political and geological stability of the 1,300-km Karakoram Highway (KKH), China’s only overland link to Pakistan. Without the KKH, which cuts an impressive path through rugged, high-altitude terrain, there is no land route to Gwadar. Without a reliable land route to the port, Gwadar’s value decreases dramatically; and the KKH is anything but reliable.


There are reasons to think that the continued existence of the KKH is tenuous. On Jan. 4, 2010, an earthquake shook loose a mountainside next to the highway, which tumbled onto the road and dammed the Hunza River, 100 km from the Chinese border. Six months later the newly formed, 100-m deep Attabad Lake had inundated 27 km of highway, cutting off 30,000 Pakistanis in remote villages leading up to China and all but halting the transport of goods in either direction. Cargo transport was bottlenecked at either side of the lake for months, with massive trucks forced onto rickety barges for the protracted crossing. During the winter, the Khunjerab Pass to China closes due to heavy snow. Ice floes on the lake provide a new natural impediment to transportation.


China’s big worry is that the earthquake and subsequent landslide that created Attabad Lake is not an isolated incident. The KKH winds through a tangle of high peaks where the three highest mountain chains in the world - the Karakoram, the Hindu Kush and the Himalayas - meet. The region is webbed with fault lines, making seismic activity a frequent and deadly reality. The epicenter of the 1974 Hunza earthquake that killed more than 5,000 people was located less than 10 km from the highway. In 2005, the Kashmir earthquake killed more than100,000 people; its epicenter was only a few dozen km from the highway. These earthquakes demolished infrastructure and blocked parts of the highway for weeks at a time (“Karakoram Highway: China’s Treacherous Pakistan Corridor” by Adam Hodge, The Diplomat, July 30, 2013).


When Beijing adds up all these geophysical and geopolitical threats to the KKH, the KKH-Gwadar transport corridor probably looks much less attractive than the Central Asian transport corridor, or “Iron-Silk Road.” And, as a result, those in the West and in India who consider the KKH-Gwadar corridor a Chinese expansionist threat to South Asia may feel a little relieved with President Xi Jinping’s recent economic success with the “stans.”

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