Source: www.asiaecon.org |

China's Risky Move in Central Asia

    Central Asia has recently become a focus of the Chinese business community.  For the Chinese government, Central Asia represents an opportunity to expand access to energy reserves and extend international influence, and as such, the Chinese government has worked to foster good relations with Central Asian governments through loans…

    Central Asia has recently become a focus of the Chinese business community.  For the Chinese government, Central Asia represents an opportunity to expand access to energy reserves and extend international influence, and as such, the Chinese government has worked to foster good relations with Central Asian governments through loans and sponsorship.  The business community has benefited from these government-led measures.  Chinese tradesmen have expanded their business and have established themselves among several Central Asian trade posts.  The effects of Chinese trade to Central Asia will likely have far-reaching consequences for the region at large.  The precise nature of these consequences depends largely on the nature of Chinese investment and the Central Asian reaction.   

    The Chinese see Central Asia through both a security and business framework.  Central Asia can represent a vulnerability. The Chinese leadership has always wanted a stable Central Asia, free from Russian or American domination, because unrest can take attention away from economic policy.  The recent rise of Islamic extremism has therefore led to greater Chinese concern, especially after the US-led invasion of Afghanistan. Of central concern are the minority Uighurs of south-west China.  The Uighurs are a Muslim group, many of whom have long wanted to secede.  Central Asian states have often supported Uighur secession.  China founded the multilateral Shanghai Cooperation Organization as a means to address Uighur secessionism.  Many hope better Chinese-Central Asian relations and extended economic growth can prevent further secession attempts (1).

    Business has been the second aspect of Chinese involvement in Central Asia.  China needs new markets for products, and Central Asia seems to be an excellent prospect.  Chinese traders represent the fastest-growing segment in the Central Asian economy.  There are, for example, now over 20,000 Chinese merchants who currently operate in Kyrgyzstan. Chinese trade to the country totals over $866 million as of 2005.  The Chinese state has spent over $7.7 million on a road through central Kyrgyzstan (2). But there are conditions to Chinese aid, and the Chinese government has often tied investment to important economic concessions.  In the case of Kyrgyzstan, China wants access the national gold industry. Kazakhstan has been another target.  Kazakhstan has the region’s largest oil reserves, and in October 2005, China acquired Canada-based PetroKazakhstan Inc.  The acquisition gave China a controlling stake in the Kazakh oil industry (3).

    The effects of Chinese trade extend well beyond business.  Chinese money can provide a means for regional development.  Thus far, most Central Asians have tolerated the encroachment of Chinese tradesmen.  Many Central Asians say Chinese products are well-manufactured and note that Chinese merchants have been somewhat respectful of local customs.  As China becomes more affluent, China could have a positive, knock-on effect on Central Asia.  Chinese tourism has expanded to Central Asia (4).  Many MNC manufacturers want to diversify production locales.  They are afraid to become too dependent on China.  Vietnam, Indonesia, and Malaysia have all benefited from FDI diverted from China (5).  Trade could also help encourage legal business. More formal sector employment could undercut the drug and arms trade and help support Central Asian governments.

    By the same token, Chinese investment could have a negative effect, especially if the central government does not effectively monitor trans-border trade.  China has become somewhat notorious for arms sales to less-than-reputable or unstable actors.  The Chinese government seems unlikely to sanction arms sales to Central Asian states, however unless these western borders are carefully controlled, the private sector may take up the trade.  The sale of arms would further destabilize the region and erode chances for broad-based Central Asian development.  Another concern looks at the Central Asian response to Chinese merchants.  Xenophobia on the part of Central Asians could lead to a backlash to Chinese trade and a move away from the global economy.  A related aspect has to do with the conditions set by the Chinese government.  China has made many demands of its Central Asian neighbors.  These states have agreed to the conditions because they need the aid and technological know-how.  However, these concessions run against the strong sense of nationalism common among many Central Asian states.  Should China exploit its advantage, it runs the risk of inciting popular unrest against these governments.  A moderate approach that stresses mutual advantage therefore seems most appropriate.

Source: www.asiaecon.org |