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Home > 2021 > China’s Geo-Economic Strategy In Central Asia | R G Gidadhubli

Mainstream, VOL LIX No 17, New Delhi, April 10, 2021

China’s Geo-Economic Strategy In Central Asia | R G Gidadhubli

Saturday 10 April 2021

by R G Gidadhubli

Subsequent to the disintegration of the former Soviet Union, Central Asia was a scene of Great Game between major global powers, namely Russia, USA and Europe and China. Even as political ties have remained close and consistent with Russia, political and economic relations of the Central Asian States with China have increased. China has undertaken active interest in Central Asia. For instance, China’s Belt Road Initiative in Central Asia is an important project linking China with Europe. This is one among the many projects of China in Central Asia, undertaken during the last over a decade which is part of China’s geo-economic and geo-political interests. It is worth considering how Kyrgyz Republic which is one among the five Central Asian States has been responding to on-going ties with China.

The CAS have been taking loans for undertaking economic projects and for overcoming economic problems. In the process they are facing problems of repayment of debts. For instance, Kyrgyzstan has taken loans from China during the last couple of decades. As a result Kyrgyzstan’s state debt is about $ 5 billion and approximately $1.8 billion is owed to the Export-Import Bank of China for a series of infrastructure projects over the last decade. Some of them are completed under the Belt and Road Initiative (BRI), which is the centerpiece of Chinese foreign policy. BRI as opined by some analysts is not simply a project but a Vision of the Chinese leader Xi as a part of geo-economic strategy of enhancing political power of China ‘Reviving Old Silk Route’ and not just benefitting CAS. Several issues are involved. As per reports, Kyrgyzstan secured help from international creditors through a Paris Club agreement in June 2020, suspending $11 million worth of debt until the end of the year. Bishkek collectively owes more than $300 million to Denmark, France, Germany, Japan, and South Korea.

Firstly, as opined by some analysts, China has often adopted policy of inflating the cost of the projects as in the case of power plant in Kyrgyzstan, which might benefit China in the long run for getting back the higher amount of debt.

Secondly, corruption has been a major issue in Kyrgyzstan as in other CAS. There are allegations of corruption charges not only against state officials but also against highest level political leaders. Due to corruption, as stated by some critics, many details over past loan contracts signed by the Kyrgyz authorities with Chinese entities are unknown, sparking further speculation among the public about how the government will settle its debt with Beijing. Moreover, the issue of corruption is also linked to the pervasive problem of money laundering. As reported by many analysts, millions of dollars are siphoned off by high-level persons including political leaders of Kyrgyzstan and other CAS and parked them in European countries.

Thirdly, as regards issues concerning repayment of debts, China has adopted a shrewd policy with regard to legal disputes. For instance, if there are disagreements between any Chinese firm and Central Asian firm or State agency when projects are in process or completed with regard to loans etc, then matters cannot be taken to international courts. This is because China holds many of the cards in debt issues when contracts are signed with any party in CAS, China stipulates that any disputes over repayment are to be settled in the Chinese arbitration courts, rather than international courts. In this way bilateral agreements contain other clauses to Beijing’s advantage. As per reports, Kyrgyzstan has faced few cases recently.

Fourthly, under prevailing pandemic scenario, Kyrgyz economy is not in good shape to repay the debt. In 2020 Kyrgyz GDP declined by 8.6 pc. Moreover, exports from Kyrgyzstan and Tajikistan to China have declined by 45 pc in 2020 as compared to that in 2019 which has affected their economies and ability to repay debts. Faced with a struggling economy and very few financial lifelines to boost domestic economy, Kyrgyzstan and other CAS are feeling the weight of their swelling state debts — a significant proportion of which is owed to China — and hence they are considering some drastic measures to meet obligations. In spite of that, being overambitious, the present president of Kyrgyzstan Mr. Japarov who won the presidential election in Kyrgyzstan and came to power in 2020 during his phone call to Chinese President in Feb 2020 supported more Chinese projects in the country.

Fifthly, facing severe problem of debt, Kyrgyz officials are concerned about potentially forfeiting assets to China as a form of repayment. For instance, some government critics expressed their concern about the prospect that the state authorities might sell off or surrender mining rights to the lucrative deposit of iron ore to pay off loans to Beijing. Alternatively, providing mining concessions to Chinese companies or relinquishing management rights of infrastructure projects that have also been floated by few Kyrgyz lawmakers as possible solutions.

Sixth, as opined by Western analyst Hillman "A lot of the issues facing Kyrgyzstan stem from the lack of due diligence and mismanagement from Kyrgyz officials over the years. But I think this is a lesson on the risks of doing business with China. This is what happens when you have a lack of transparency around lending." He is candid in stating "Taking an asset is not a good political move. It will confirm everyone’s worst fears about China and Belt and Road."

Seventh, under prevailing situation in November 2019, Kyrgyzstan wanted the debt to be written off for which China did not concede. However, some relief did come from Beijing in the form of debt deferment, allowing $35 million owed for that year to be delayed until 2022-24, at 2 percent interest.

Eighth, this debt impasse highlights the difficult bind that many countries – including Kyrgyzstan, Kazakhstan, Tajikistan, and Pakistan — have with Chinese-owed debts from large BRI infrastructure projects as they deal with the economic crunch caused by the COVID-19 pandemic. As per some reports, the BRI has suffered setbacks recently due to concerns in host countries over mounting debts, with many governments from Central Asia.

Ninth, Kyrgyzstan and other CAS should have utilized huge inflow of foreign investment and technology for promoting and expanding economic base by developing engineering and hi-tech industrial units, agro-processing and consumer goods enterprises etc. which would have generated more employment and financial resources for repayment of debts. In reality while Kyrgyzstan and other CAS have to bear High Costs, China has taken Benefits of BRI projects by not only increasing exports to CAS but also making them over-dependent upon China and thus succeeding in its geo-economic strategy in Central Asia.

In lieu of conclusion it may be stated that Xi who is an autocratic leader of China having tightened grip on power at home during the last decade has intended to make China Great Global Power. His global ambition, particularly the Belt and Road Initiative (BRI) with regard to CAS, is a blanket term for the multibillion-dollar centerpiece of Xi’s foreign policy that builds influence through infrastructure, investment and closer political ties.

(Author: Dr. R.G.Gidadhubli, Professor And Former Director, Center For Central Eurasian Studies, University Of Mumbai)

20th March 2021

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