While Russia focuses on its geopolitical objectives in Central Asia, China’s primarily interest is in the region’s mineral and energy resources. As recipients of Chinese investments and development aid, the five Central Asian countries are seeking to leverage the two powers’ competition for their own benefit.
In a nutshell
- Russia is doing more business in Central Asia, but China remains the region’s biggest investor
- The five “stans” are leveraging their big neighbors’ geostrategic interests for faster development
- While Beijing is taking pains to avoid irritating Russia in its former backyard, competition and tensions are intensifying
For more than a decade after the 1991 collapse of the Soviet Union, the countries in Central Asia enjoyed a degree of independence in their internal and external affairs that they had not known for centuries before. The most vivid examples came to light following 9/11 terrorist attacks on the United States, when rights for the transit and basing of American troops were allowed in the region. Kazakhstan, like some other Central Asian countries, sent soldiers to Iraq as a part of the U.S.-led multinational force, despite strong opposition from Russia and China to the military operation. That era seems to be over now, as great power competition has returned as a driver in international relations. What does this augur for Central Asia’s five “stans” – Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan and Turkmenistan?
The most likely scenario combines three simultaneous trends. Russia will step up efforts to strengthen its presence by trying to expand the Eurasian Economic Union (EAEU) and enhancing its economic incentives. China, too, can be expected to increase its already massive investments in the region while pursuing selected political goals. The third trend involves an effort by the Central Asian governments to balance these relations with expanding ties to the outside world.
Russia’s influence in the former Soviet republics of Central Asia during the 1990s was initially based on little more than the legacy effect of economic and social integration from the Soviet era. Until a decade ago, this was not backed up by significant new investments.
Russia’s most sizeable investment in Central Asia during the early postindependence period was the Caspian Pipeline Consortium’s pipeline link. It transports some two-thirds of Kazakhstan’s oil to the Novorossiysk-2 Marine Terminal on Russia’s Black Sea coast.
It was Kazakhstan’s President Nursultan Nazarbayev who first came up with the idea during a 1994 visit to Moscow.
Remittances from Russia were another crucial element: depending on the country, from 4 percent to as much as 47 percent of the work forces in Central Asian states earn their income as migrant labor in Russia. The largest number, estimated at 3 million, comes from Uzbekistan. According to the World Bank, remittances from laborers in Russia constituted, respectively, 52 percent and 31 percent of Tajikistan’s and Kyrgyzstan’s gross domestic products (GDP) in 2013.
While Russian companies did business in Central Asia, there were no signature development projects backed by the Russian government in this period that could be treated as instruments in the larger geopolitical game. This has changed during the past decade or so, as economic conditions in Russia improved and Moscow’s efforts to create the Eurasian Union intensified.
While creating and expanding the EAEU has been Russian President Vladimir Putin’s regional priority for some time, it was Kazakhstan’s President Nursultan Nazarbayev who first came up with the idea during a 1994 visit to Moscow. A customs union came into force in 2007 and an EAEU common market was announced in 2015. A system of free movement of goods, capital, services and people, like that in the European Union, is being pursued. A single currency and other forms of integration are envisioned in the future. The Eurasian Union’s current members are Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan.
As the EAEU negotiations picked up, so too was investment by Russian companies, both state-owned and private.
In Kazakhstan, according to President Nazarbayev, an estimated $25 billion worth of projects have been started by Russian firms, mostly in the mining and natural resources sector, since 2014. In the same year, the Russia Kyrgyz Development Fund was set up to help modernize Kyrgyzstan’s industries. The fund’s seed money of $500 million was provided by Russia, which allocated another $200 million for technical assistance. Meanwhile, Russia’s state-owned natural gas giant Gazprom took over the country’s gas-related infrastructure. Gazprom’s total investment in Kyrgyzstan is expected to exceed 100 billion rubles (approximately $1.7 billion).
In Tajikistan, Russia’s large-scale investments commenced with Sangtuda1 hydroelectric power station on the Vakhsh River, with a total capacity of 670 megawatts total capacity, which started operations in 2009. And Gazprom has become the leading force in the country’s gas exploration since its 2008 agreement with the Tajik government.
Uzbekistan, in its turn, struck a deal in 2004 with Lukoil, one of Russia’s largest oil producers. Lukoil’s projects in the country include construction of a $12 billion worth gas-processing plant. Gazprom is also investing in exploration and production of natural gas. In 2016, Russia wrote off $865 million of Uzbekistan’s debt.
Those activities stand in stark contrast to the 1990s, when Russia all but disappeared from the region as an investor and significant economic player. Over the past decade, Russia has also strengthened its military presence in Kyrgyzstan (where the U.S. closed down its last Central Asian base in 2014) and in Tajikistan, which gives Moscow leverage that no one else has in the region.
Kazakhstan is becoming a transportation hub for China to the rest of Central Asia, Europe and the Middle East.
Finally, Turkmenistan. It stands out in Central Asia, because it features no significant Russian investment and has distanced itself from Moscow in most other respects, leveraging Chinese funding and export markets instead. At the moment, relations between Russia and Turkmenistan are complicated by their rivalry on the global gas market.
China’s investment in Central Asia over the past quarter-century has been unparalleled. These capital flows have been concentrated on natural resources extraction and infrastructure projects.
Kazakhstan has received the biggest outlays. As many as five oil and gas pipelines running thousands of kilometers have been constructed, connecting the country (and the rest of the region) to western China. Today, Chinese companies are involved in more than a quarter of Kazakhstan’s oil production. Accompanying investments in copper mines, aluminum smelters, hydropower, cement plants and other key industries have made China the leading foreign direct investor (FDI) in Central Asia’s largest country. Its total exposure exceeds $30 billion.
Notably, Kazakhstan is becoming a transportation hub for China to the rest of Central Asia, Europe and the Middle East. Within the framework of China’s Belt and Road Initiative (BRI) – announced by Chinese President Xi Jinping during his 2013 trip to Kazakhstan – and Kazakhstan’s own, complementary Shining Road program, 51 projects worth $26 billion are being implemented.
Turkmenistan is China’s leading supplier of natural gas today. Close cooperation began just a decade ago, when the China National Petroleum Company (CNPC) acquired exclusive rights to develop an onshore gas field in Turkmenistan. Today, its gas flows through the China-funded Central Asia-China pipeline directly to China’s domestic network. Reportedly, Chinese banks have extended more than $12 billion in loans to Turkmenistan for infrastructure, gas exploration and extraction. With its near exclusive status as Turkmenistan’s sole export market and financing source, China has extremely strong leverage over the country.
Tajikistan receives more than a half of its FDI from China. Projects range from cotton to cement production. The country’s largest gold mining company is a Tajik-Chinese joint venture. A Chinese firm has also built a critically needed 400-megawatt coal-fired power plant in the nation’s capital (Dushanbe has been known for blackouts as its hydroelectric plants run dry during the winter). China also funded strategic power lines connecting the south and north of the country. Its companies have invested in silver, zinc and lead production. Finally, China holds close to 50 percent of Tajikistan’s sovereign debt. This point attracted significant public attention when bits of Tajik territory were handed over to China as a result of negotiations to demarcate the common border.
In Kyrgyzstan, China is financing a $400 million overhaul of a power plant in the capital along with several important power grid and road projects. Chinese firms are active in gold production and exploration. Two Chinese-backed refineries are processing imported crude oil in the country. In total, China has extended close to $2 billion in loans to Kyrgyzstan, along with more than $300 million in grants, which makes it by far the country’s largest funding source.
The two powers have a shared interest in limiting the influence of other major players in Central Asia.
In Uzbekistan, a Chinese company has built the railway link connecting the country’s agricultural base in the remote Fergana valley with the rest of its territory. The new link, which was also mostly Chinese funded, eliminates the need for rail traffic to pass through Tajikistan. In the future, it may form part of a longer rail corridor from Uzbekistan to China, via Kyrgyzstan. Chinese companies are also engaged in the chemical industry, including an expansion of a major fertilizer plant. The CNPC is involved in redeveloping parts of the country’s Dengizkul natural gas field and in construction of a gas processing plant. The latter is a joint venture with the Uzbekneftegaz, the state-owned oil and gas company.
In its role as Central Asia’s leading foreign investor and funding source, China clearly has benefited, securing supplies of strategic commodities for its industries through dedicated infrastructure. However, Beijing’s engagement also helps address the recipient countries’ genuine development needs. By providing the Central Asian states with critical infrastructure and a steady market for their exports, China has gained leverage in the region that didn’t exist before.
The process of integration inside the Eurasian Union runs parallel to a military alliance called the Collective Security Treaty Organization (CSTO), which consists of Russia, Belarus, Kazakhstan, Armenia, Kyrgyzstan and Tajikistan. Afghanistan and Serbia are nonmember observer states. Uzbekistan left the CSTO in 2012, while Turkmenistan never joined it.
The group aims to give its members both territorial and economic security. While access to the CSTO does not automatically lead to membership in the EAEU, and vice versa, the two processes seem to be closely intertwined. And as the Shanghai Cooperation Organisation (SCO) begins to reflect broader, more diverse and sometimes contradictory regional interests with the 2016 admissions of India and Pakistan, the EAEU and the CSTO will be increasingly important platforms for Russia.
Moscow is making intense efforts to woo Tajikistan, which is considering EAEU membership and is already a member of the CSTO, as well as Uzbekistan. Political leaders from Uzbekistan and business personalities with ties to the country (such as Alisher Usmanov, Russian business mogul who was born in Uzbekistan and is best known for owning 30 percent of London soccer club Arsenal F.C.) are reported to be in increasingly frequent contact with Moscow. Success of the efforts to persuade Tajikistan and Uzbekistan to join the Russia-led organizations could be the most significant indicator of change in the regional balance of power.
A lot will depend on the resolution of a dispute over the construction of Tajikistan’s Rogun hydropower plant. The project to build the world’s tallest dam has stirred up Uzbek fears about water supplies for its crops. China did not seek to replace Russia as the funding source for the project, which illustrates Beijing’s care not to trample on Moscow’s geopolitical sensitivities.
Even so, China’s leverage in the region has increased very significantly since the Soviet period, when it was considered Russia’s backyard. China’s first-ever joint antiterrorism drills in Tajikistan in 2016 and Beijing’s offer to help in the construction of 11 outposts for Tajik guards along the 1,300-kilometer Tajikistan-Afghan border highlighted Dushanbe’s role in helping contain Islamic radicals adjacent to China’s western provinces.
Russia will continue to expand its economic involvement in the region to help cement its military, political and social influence. At the same time, China will bring its already huge economic leverage to bear on selected political and military issues that are key to its national security. In doing so, however, Beijing will be careful not to rub Russia the wrong way.
oft power matters very much in this jostling for position and influence. Much of Russia’s influence still comes from shared history. Despite the memory of Stalinist repression, there is also a sense in the former Central Asian republics that the Soviet era brought significant social and economic change to the region. In the present time of powerful tools of communication, intangibles like moral authority, legitimacy or image are powerful factors in foreign policy. Thus, more scholarships, cultural exchanges, funding for universities and more generous labor quotas should be expected to be forthcoming from both Russia and China.
region’s economic dependence on its two big neighbors deepens, the need to offset this process by enhancing and broadening the Central Asian countries’ international visibility will become more pronounced. While systems of one-man rule, (exercised with varying degrees of sophistication) do not help their image, public relations campaigns to present the “stans” as energetic, youthful, fast-modernizing nations with significant business potential are already bringing tangible results.
in Central Asia in the coming decade is not a repetition of “the Great Game,” in which outside great powers battled to control the region. Instead, we will witness quieter forms of competition for leverage and business. This rivalry may occasionally burst into the open during power transitions or in the context of other significant political developments, as for instance in the case of Kazakhstan's decision to sit out the United Nations Security Council's vote on a Russia's-drafted resolution on the recent chemical attack in Syria.