China’s Investment Trap has Become a Major Concern in Central Asia

26.05.2018 Author: Grete Mautner

CNPC-Line-C-of-Central-Asia-China-Gas-Pipeline-Operational

Perhaps the most curious topic of today’s Central Asian agenda is the growing dependence of local states on Chinese loans, which would often be referred to in regional media sources as “means of neocolonialism.”

In recent years, China has visibly stepped up its involvement in the affairs of Central Asia states, taking advantage of both its loans and its soft power. However, Beijing is trying to pacify worried voices across the region terrified by the demographic and economic might of China. There’s no denying that Central Asia for China is among the most crucial regions, since it shares a common border with a number of regional countries that play a pivotal part in ensuring China’s security and supply of energy and resources.

Nobody is making a big secret today of the fact that China lends regional governments long-term loans with low annual interest rates that can get as low as 2%. Against the backdrop of those hard-to-get Western financial investments, there’s really no alternative to Beijing’s loans. However, those always come with strings attached, as China’s loans would often be provided to back up large infrastructure projects, with Beijing’s contractors demanded be involved, providing labor, logistics and technology.

This financial hegemony never seems to be after a swift return on investments, as it would be typically interested in getting the other state financial dependent. The debt that has grown with time can be restructured and paid through granting China access to raw materials or stakes in the national companies of those states that borrowed money from Beijing. But in what way does this differ from the classic colonial scheme when investments would often be repaid with natural resources and lands? It’s no wonder that the West is trying to do the same to Ukraine these days, demanding it to open the agricultural market to bring its fertile lands to the hammer.

Kazakhstan

There’s little doubt that Kazakhstan ranks first among regional states who’s national wealth relies on Chinese loans and direct investments. According to its national bank, Astana owed China the staggering 12.6 billion dollars at the beginning of this year.

Against the backdrop that China’s loans are granted on the condition of Beijing receiving access to this country’s raw materials along with stakes in a handful of national enterprises, the topic of Chinese loans remains by far the most uncomfortable for Kazakhstan to discuss publicly. The situation got even worse when in 2016 in local media sources announced that Kazakhstan was planning to put another 1.7 million hectares of land on sale, with spontaneous mass protests breaking out across the state, as no one believed that the land would not be sold to foreigners. These protests led to the adoption of moratorium on such sales until the end of 2021, but still such a possibility remains on the cards.

Kyrgyzstan

The American Center for Global Development published a report on China’s debtors last March, identifying a total of eight most financially vulnerable countries. Of the Central Asian countries, both Kyrgyzstan and Tajikistan made the top of the list, since the sheer amount of money they are bound to pay Beijing has surpassed 50% of their total foreign debt.

Last year, Bishkek‘s national debt reached the staggering rate of 65% of this Kyrgyz state GDP, with external debt making up to 90% of this total.

As it was announced at the meeting of the Parliamentary Committee on Budget and Finance of Kyrgyzstan in April, the total debt of Kyrgyzstan to China has reached 1.7 billion dollars. The sole largest outside creditor of Bishkek is China’s own Export-Import Bank, that can demand local politicians to hand a total of 470,000 dollars back at any given moment. Sure, China’s involvement in Kyrgyzstan would be unthinkable without large infrastructural projects like roads, electric power infrastructure, along with local industries like the oil refinery of Kara-Balta and gold mines of Taldy-Bulak Levoberezhny.

The country will have to pay China back at least 320 million dollars in the next five years. At the same time, local elected representatives would repeatedly stress the fact that back in the day when an agreement with the Export-Import Bank of China was drafted, those negotiating it were not really taking Kyrgyz interests into consideration, so there’s a chance that when the above mentioned period is over, Bishkek won’t have the money to pay its largest creditor. In addition, the agreement implies that all legal disputes between Kyrgyzstan and China are to be settled in the the Hong Kong arbitration court, which doesn’t make things any more promising for the debtor. Moreover, in the next couple years additional 300 million are to be spent on the servicing of the external debt of Kyrgyzstan, and, according to the local ministry of finance, the Kyrgyz Republic will be theoretically capable to repay its debt to China in the next quarter century or so.

The matter of the massive Kyrgyz debt to China is kept out of the public discussion in the country, as it can trigger massive protests. But since Bishkek has an abundance of natural resources in the form of gold, iron, rare earth metals and other deposits, Beijing doesn’t look too worried about the prospects of its involvement in the affairs of this state.

Tajikistan

In the regional media, Tajikistan is often being referred to as the “ultimate hostage of Beijing” or even “the Chinese colony”, along with all sorts of equally humiliating comparisons.

Dushanbe’s national debt to the Republic to China at the beginning of the year reached 1209.6 million dollars, which amount to 50% of the total foreign debt of Tajikistan.

China is eagerly making investments into Tajik energy and road construction projects, along with a wide range of other sectors, including aluminum production, cellular communications, and gold mining.

As for the repayment for this massive debt, China’s TBEA has recently received exclusive rights to mine the Upper Kumarg gold mine. Earlier, this same company obtained access to the East Douba deposits. TBEA will be extracting gold from these sites until it returns the funds invested in the construction of a large power plant in Tajikistan. Earlier, TBEA received similar rights on the mining of coal in Tajikistan. But now it’s talking gold.

In addition to natural resources and shares in national enterprises, Tajikistan can grant China control over its transport routes and lands. For instance, back in 2011 Tajikistan surrendered to China 1% of its total territory, which amounts to more than 400 square miles of once disputed lands in the Eastern Pamirs. China is particularly interested in those areas that are rich in minerals (uranium, gold, bauxite, asbestos, rock crystal and much more). Therefore, it is possible that China is going to be more that willing to explore various scenarios of Dushanbe fulfilling its financial obligations to it in the future.

Turkmenistan

This republic is being known as a place where China has occupied a dominant position in a number of financial fields. The country has virtually no other revenues on top of those that it receives from exporting natural gas to China, however this country’s closed nature makes further analysis virtually impossible.

Uzbekistan

Uzbekistan, perhaps, can be found in a list of less defendant states in the region when China’s loans are concerned. However, recently China has been trying to address this drawback, as Uzbekistan looks a much more promising market for investments than most its neighbors.

There’s no point in arguing that loans are an instrument of external pressure. And China is known for its way of never writing off debts, like Russia would often do. On top of this, Beijing has a large number of unresolved territorial disputes, like the ones with Kazakhstan, Tajikistan and Kyrgyzstan. And if we take into consideration the fact the return of China’s historic territories is part of Beijing’s foreign policy, one can not exclude the fact that land concessions in exchange for investments will remain among China’s most desirable aspect of its foreign policy in the Central Asia region.

Today, there’s strong fears across the region that China, which has become one of the largest regional players and a principal partner ca demands them to pay the whole sum, while  Beijing sees no nreasons to be finicky in its investments, but there’s those that down want to experience this.

Grete Mautner is an independent researcher and journalist from Germany, exclusively for the online magazine “New Eastern Outlook.