June 19, 2024

Erkinbek Kamalov

China’s strategic influence in Central Asia intensified, case of Kyrgyzstan

The geopolitical landscape within Central Asia has been changing rapidly due to external players. This process especially accelerated after Russian invasion of Ukraine. Central Asian states faced new realities and indirect challenges, such as unprecedentedly tough economic and political sanctions against Russia. As a result of those sanctions, the steady decline of its potential in the political, economic and military spheres including in Central Asian region.

The resulting niches began to quickly be filled by other countries, especially, China. China's role in the countries of Central Asia was already previously quite high, especially in the economic sphere, but its influence began to grow more at an even faster pace. All this fully applies to Kyrgyzstan as well. Statistics indicate that over the past year, foreign trade turnover between Kyrgyzstan and China has increased sharply. For instance, imports from China to Kyrgyzstan in 2021 amounted to $737 million, and in 2022 it was already $4 billion 70 million. Probably, the figures for 2021 do not fully reflect the objective picture, since post-Covid consequences were still affecting then. But, if we take pre-pandemic 2018, then even then imports from China amounted to 1 billion 943 million. That is, in 2022, imports increased by more than 5.5 times compared to 2021, and more than 2 times compared to pre-Covid 2018. Obviously, this growth is largely due to sanctions against Russia and the establishment of transit supplies there from China through Kyrgyzstan. This is also evidenced by the figures for the growth of exports of goods from Kyrgyzstan to the Russian Federation. If in 2021 exports from the Kyrgyzstan to the Russia amounted to about $394 million, then in 2022 it will already be $964 million. Moreover, in pre-Covid 2018, exports from the Kyrgyzstan to the Russia amounted to approximately 359 million dollars, which is almost the same as in 2021. At the same time, the increase in transit supplies (parallel imports) from China to Russia does not deny, but only confirms, that the overall role China's share in the economy of Kyrgyzstan is growing steadily. Probably, the growth of the Kyrgyz economy in the last 2-3 years is largely due to the unprecedented growth in transit supplies from China.

Today, China, with more than $70 billion, already ranks first in trade turnover with the countries of Central Asia. The second place is occupied by the European Union with 47 billion dollars, and in third place is Russia with 42 billion dollars. It is obvious that the Central Asia-China meeting held in the “5+1” format (Xi’an, May 18-19, 2023) gave new impetus to increasing China’s economic influence in the region. At the same time, it becomes clear that China is no longer limited to cooperation primarily in the economic sphere. If earlier China mainly focused on the economy, now the spheres of security, culture, science and education have been added to economic issues, that is, virtually the entire range of issues, including those previously traditionally considered “belonging” to Russia. In total, agreements worth more than 50 billion were signed with the countries of Central Asia dollars. With Kazakhstan, for example, by $22 billion, and with Uzbekistan by $15 billion.
For Kyrgyzstan, in addition to projects in the field of culture, science and public administration, specific economic projects worth more than one billion dollars were envisaged. These are projects in the field of energy, transport, mechanical engineering, agriculture, etc.:
- investment agreement between the Ministry of Agriculture of the Kyrgyzstan and Hebei Bai Dou Jia LLC for the implementation of a project for the construction of a fertilizer production plant;
- an investment agreement between the Ministry of Energy of the Kyrgyzstan and China Power International Development Limited on the construction of a 1 GW solar power plant.
- an agreement of intent on cooperation in the export of electricity from the Kyrgyz Republic to China between the Ministry of Energy of the Kyrgyzstan and the TBEA company; In addition, a special place is given to the transnational scale project: China-Kyrgyzstan-Uzbekistan Railway which started recently. This project is estimated to cost an additional $3-7 billion. Thus, in general, the scale of the planned ongoing projects between China and Kyrgyzstan only at the current stage can be estimated at a huge figure for the Kyrgyz Republic, about 8 billion dollars. It becomes obvious that Central Asia and Kyrgyzstan, in particular, are at a new stage of cooperation with China. The consequences of this cooperation can be both positive and negative, thus, the coming decade in Central Asia will be marked by the growth of Chinese influence.

Opportunities and risks for the Kyrgyzstan
The rapid and significant growth of Kyrgyz-Chinese cooperation, significant financial injections, the arrival of new companies and technologies from China can bring with them great opportunities for the development of the economy of Kyrgyzstan. Investments in energy, mechanical engineering, agriculture of the Kyrgyz Republic, etc. create opportunities for qualitatively new development of the Kyrgyz Republic. Of particular importance is the planned construction of the China-Kyrgyzstan-Uzbekistan railway. If this project is implemented, Kyrgyzstan will receive a huge impetus for many years of progressive development and growth of the country’s role in the entire Central Asian region. It can be stated that the increase in the speed and scale of cooperation with China potentially carries a great positive charge for Kyrgyzstan, which Kyrgyzstan must utilize as much as possible. However, along with great opportunities, the rapid growth of Chinese financial investments and the entry of a large number of Chinese companies can create significant risks that one should be aware of and take the necessary preventive measures to ensure that these negative risks do not turn into a reality. So, it is not yet clear which part of the Chinese financial investments will be loans and which foreign direct investment (FDI). There is no detailed information yet and under what conditions the projects will be implemented. That is, it is not clear whether China will be granted any privileges in the field of land use, attracting its labor force, taxation, use of infrastructure, etc. For instance, according to the Kyrgyz Minister of Agriculture, the plant for the production of mineral fertilizers will be built entirely with Chinese investments in the amount of about 246 million yuan ($35 million). China will operate this plant for 30 years, and then transfer it to the Kyrgyz side.

It is not yet clear under what conditions this plant will operate, what the percentage of Chinese and Kyrgyz workers and executives will be there, whether their working conditions will be the same, etc. It is not yet known whether additional labor quotas will be allocated for this plant or everything will fit into the existing quotas. It is also unclear how transparently this plant will operate, whether the Kyrgyz inspection authorities will be able to fully control it or not. These issues and a number of others related to this particular project, as well as to all other Kyrgyz-Chinese projects, are extremely important because they have long-term consequences for Kyrgyzstan. It is well known that loans provided by China in general are more expensive than, for example, those from other international financial institutions. For instance, the standard rate for Chinese loans is 1.5-2%, and for loans from the International Monetary Fund - 0.5%, the Asian Development Bank - 1-1.5%, the Eurasian Development Bank - 1%, the World Bank - 0.75 %. At the same time, China almost never writes off (does not forgive) loans, unlike, for example, European countries, Japan or Russia, and international financial institutions.