Originally published on ccradvisorygroup.com on Dec 15, 2016.

The success or failure of China’s ambitious Belt and Road program for Eurasian integration and development may be determined along the Steppes of Central Asia.  From the very outset of President Xi Jinping’s New Silk Road initiative, Central Asia has been at the center of the effort.  It was at Nazarbayev University in Astana, Kazakhstan, where President Xi Jinping first announced the One Belt, One Road program on September 7, 2013, during a tour of Central Asia.  And a simple study of the map of the Eurasian transport corridors into Western Europe makes clear that the New Silk Road, like the original Silk Road of past centuries, traverses Central Asia.[1]

There are significant resource challenges in developing Central Asia, largely as the consequence of the collapse of the Soviet Union, and the breakdown of the integrated water/energy grid that had serviced the entire Central Asia region during the later Soviet period.  The Aral Sea has receded 75 percent over the past 40 years, as the result of the breakdown of the upstream/downstream distribution of water and energy through the four core Central Asia independent states of Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan. Additionally, the concentration on cotton production, which is among the most water-intensive crops, has also contributed to the water depletion throughout the Central Asia region, with the exception of the Fergana Valley.[2]

Geopolitical Issues Trump Logistical Challenges

However, the geopolitical dimensions of the Central Asia challenge far outweigh the engineering and investment issues, which can all be solved by the proper application of modern technologies and sufficient credit to fund the needed infrastructure modernization.  Chief among these geopolitical challenges are: (1) The historically competitive relations between Russia and China over influence in Central Asia; and (2) the role of Japan, and whether Japan will forge cooperation with China for the development of the New Silk Road, or will seek to partner with Russia–but not with China–for dominance over the vital transport corridors and emerging markets.

Central Asia, for most of the twentieth century, was part of the Soviet Union, and was a component of Russia’s extension across Asia.  If Central Asia is to develop again as a center of East-West trade and emerge as a growth region of the world economy, China and Russia will have to reach a full strategic understanding which overcomes historic rivalries and competition for control over this raw-material and energy-rich region.  While the historic “Great Game” for control over “the ceiling of the world” largely played out between Britain and Russia during the nineteenth century, the current dynamic is different, given that the Western powers, represented by the United States and NATO, have been drained by a more-than-30 year military engagement in Afghanistan, and have played only a secondary role, if that, in the new economic dynamics of Central Asia.

Although the Obama Administration spoke of its own “New Silk Road”–comprised of gas pipelines connecting Central Asia, through Afghanistan and Pakistan, to the Indian Ocean–the U.S. policy today largely exists in the form of planning papers gathering dust at State Department and USAID offices.  Through the efforts of Paul Brinkley, a Pentagon aide to former Defense Secretary Robert Gates, the United States briefly had an agreement with China to provide security for a major Chinese copper mining investment in Afghanistan, southeast of Kabul.  With Brinkley’s departure from the Pentagon, the U.S. efforts have been largely limited to security operations within the ring road surrounding the Afghan capital.[3]

Admiral Bob Inman, former Director of the National Security Agency (NSA) and Deputy Director of the CIA, who is now Chairman of SR-21, a policy think tank involved in American-Asian affairs, has called for the United States and NATO to exit from the Afghanistan quagmire through a cooperative arrangement with the Shanghai Cooperation Organization (SCO), the security alliance which includes China, Russia, the five Central Asia states, India, Pakistan, Mongolia and (soon) Iran.  SCO incorporates all of the countries surrounding Afghanistan, and they all have a vested interest in achieving stability and prosperity for Afghanistan, without which, the entire Central Asia region—and the Belt and Road Initiative (BRI)—remain in a state of permanent chaos and insurgency.

It is essential, for the full realization of the Belt and Road Initiative, that the entire region—Central Asia, Afghanistan, Western China—is stable and free from the kind of asymmetric warfare threat that exists today. The logic behind Admiral Inman’s proposal for the SCO to play a pivotal role in the BRI, goes to the heart of the matter: Without real security, the Initiative will be very hard to realize. It is clear that both China and Russia understand this link. While the SCO has recently broadened into an economic and political cooperation association, it was initiated as a security alliance to address the challenges of stability in the post-Soviet era. One factor behind the Russian intervention into the Syria War in September 2015 was the recognition that there are thousands of Chechen fighters in the ranks of the Islamic State (ISIS) and the Nusra Front, and that those fighters intend to return to the Caucasus region and launch a jihadist insurgency there. More recently, the Chinese have launched a military training program for Syrian troops, reflecting a shift in Chinese policy towards a more proactive involvement in the fight against Salafist terrorism. Just as the Russians fear a Chechen insurgency in the Caucasus by battle-hardened fighters, the Chinese fear that Uighur fighters from the Xinjiang province who are now fighting in Syria will return to China and launch violence.

In recent summit meetings, Russian President Putin and Chinese President Xi Jinping have highlighted cooperation between China’s Belt and Road project and the Russian-led Eurasian Economic Union (EAEU), which consists of Russia, Belarus, Armenia, Kazakhstan, and Kyrgyzstan.  If this cooperation fully materializes, and the SCO is also fully engaged in the security needs of the BRI, the prospects for success greatly increase.

In August 2016, China, Pakistan, Tajikistan, and Afghanistan formed a counter-terrorism alliance to combat the growing jihadist presence in the region.  From November 22-27, 2016, military officials from all four countries met at the PLA’s Special Operations College in Beijing to plan coordinated counter-terror operations.  China is particularly concerned about growing Uighur terrorism, facilitated by transit routes through Afghanistan and Pakistan into West Asia, where an estimated several hundred Uighur fighters have affiliated with the Islamic State and the Al Qaeda-affiliated Nusra Front.

Following five days of consultations in Beijing, these military officials traveled to Kashgar, in the Xinjiang Uighur Autonomous Region of Northwest China, to observe counter-terrorism training exercises.  Kashgar is part of the new industrial region of Xinjiang, which is largely oriented to basic manufactured goods destined for the Central Asian emerging markets.  Kashgar is the northern terminus of the planned China-Pakistan Economic Corridor, which runs to the Gwadar port.

Trade, Investment, and Potential Backlash

Already, by 2013, when President Xi Jinping first announced the Belt and Road program in Astana, Chinese trade with the five Central Asian nations had passed $50 billion a year–$20 billion more than the total Russian trade with those five former Soviet republics.  The gap has widened over the intervening three years, as the Russian economy has suffered from collapsed oil prices and the consequent decline in capital investment in infrastructure and industry.  China, despite a slowdown in the transition from a primarily export-led economy to a more balanced economy with increasing domestic consumer spending, has greatly increased foreign direct investment in the 30 countries that constitute the main Belt and Road partners.  In the first ten months of 2016, FDI was up by 50 percent, with Central Asia being a primary recipient of Chinese investments.

Chinese firms have been heavily investing in Special Economic Zones (SEZs) in all of the Central Asian nations.  In Uzbekistan, Chinese companies have invested in SEZs in Navoi, Jizzakh, and Angre, where mobile phone and textile manufacturing is underway.  A joint Chinese-Kazakhstan automobile manufacturing plant has been opened in the SEZ at Kostanay.  There are also cement and flat glass factories operating in Kazakhstan with Chinese investment and participation.

While some manufacturing is being promoted in Central Asia, much of the Chinese investment is focused on energy and raw material extraction, and highway and rail projects.  In fact, far more Chinese investment has gone into the buildup of manufacturing in the Xinjiang Autonomous Uighur Region—for export to a newly emerging Central Asia market.  Between 80 and 90 percent of the Chinese exports to Central Asia are finished goods, while 75 percent of the Central Asian exports to China are raw materials—oil, gas, and metals.  According to some Central Asian economists, while the region has benefited greatly from Chinese investment, the over-emphasis on raw material exports to China has raised concerns that Central Asia could become a de facto raw material colony of Beijing.  Some Central Asian manufacturing firms have gone out of business as the result of Chinese “dumping” of cheaper finished goods on the regional market, and there have been occasional reports of rioting against Chinese companies that import Chinese labor for construction projects in Central Asia.  The most serious incident to date took place on August 30, 2016, when a suicide bomber blew himself up in front of the Chinese embassy in Bishkek, Kyrgyzstan.

There are, nevertheless, mechanisms to address these challenges and satisfy some of the legitimate complaints coming from Central Asian states.  On October 19, the fourth China-Central Asia Cooperation Forum took place in Chengdu, China, where some of these issues were aired, and new plans were set forward for further economic cooperation and integration.  In March 2015, the Chinese government published an action plan for cross-border economic cooperation with Central Asia, including economic cooperation zones and a series of industrial parks.

Significant progress has been made in rail and road transport.  Earlier this year, the first China-to-Iran rail freight shipment arrived, passing through Turkmenistan and Kazakhstan.  In September 2016, the first China-to-Afghanistan rail freight shipment took place, after passing through Uzbekistan and Kazakhstan.

The Japan Factor

Another significant geopolitical consideration that could impact on the Belt and Road program is the recent efforts by Japan to build economic ties to Central Asia.  Japan and Russia are building economic ties, which could potentially challenge China’s commanding position in Central Asian development and energy trade, despite the Russia-China strategic partnership.

In October 2015, Japanese Prime Minister Shinzo Abe led a delegation of 50 top Japanese corporate leaders to all five Central Asian countries.  He announced at that time that Japan was prepared to invest $200 billion over the next five years in regional development projects.  During the visit, the Abe delegation signed contracts for $18 billion in investment in Turkmenistan, to build gas purification and chemical plants.

In November 2016, the Japan Bank for International Cooperation (JBIC) and Russia’s Far East Development Fund announced a $1 billion joint investment program.  JBIC recently announced a $38.5 million loan to Russia’s Sberbank for the modernization of the coal port at Vostochny.  With Japan investigating prospects of broader use of “clean coal” technologies, rail links to Russia and Central Asia, which have abundant coal reserves, have been given greater Japanese priority.  Japan is looking to develop rail links through Kazakhstan, Kyrgyzstan, and Tajikistan that bypass China.  Japan is also talking with Russian Rail Corporation about modernization of portions of the Trans-Siberian Railroad, which would link the Japanese port of Yokohama to Moscow, greatly reducing costs and travel time.

Japan is a late arrival to Central Asia, however.  Russia has a long-standing presence, and China has been investing in Central Asia for the past 15 years, at a growing rate.  To offset these disadvantages, Prime Minister Abe has launched what he called the “Partnership for Quality Infrastructure,” an obvious challenge to China to meet Japan’s world-class production standards.

How Deep Does the China-Russia Great State Partnership Run?

Another factor that contributes to the uncertainty about the future stability of Central Asia is the looming leadership changes in the region, some of which have already taken place.  On September 2, 2016, Uzbekistan’s official state media confirmed the death of President Islam Karimov.  Karimov was appointed as head of the then-Soviet Republic in 1989 by President Mikhail Gorbachov, and he held on to power ever since.  Karimov ruled the country of 31 million—the largest population in Central Asia—with an iron fist, clamping down on protests and recently taking strong measures against any Islamist insurgencies.

Karimov’s death, while it has not produced an immediate power struggle or power vacuum, is a reminder that the generation of Soviet-era leaders in Central Asia is dying off, and this added element of uncertainty could test the strength of the Russia-China cooperation.

Kazakhstan is led by Nursultan Nazarbayev, who also came to power in 1989 as the head of the Communist Party.  Following the breakup of the Soviet Union, Nazarbayev was elected the first President.  He is believed to be in poor health.

Similar situations exist in all of the other Central Asian states, where Soviet-era leaders are nearing the end of their careers, and where political institution building has lagged even behind the slow pace of economic growth.

With the passing of the Soviet-era strongmen, the strength of the Russia-China relationship will be put to the test, as both nations have a strong vested interest in retaining influence over the five Central Asian states as these states go through leadership transitions and face a growing threat of jihadist insurgencies.   Through institutions like the SCO, and through the growing cooperation between the Eurasian Economic Union and the China Belt and Road Initiative, the geopolitical fault lines can be overcome, through a cooperative approach to both security and economic development.

That will be one of the crucial tests of the viability of the overall Belt and Road future.


Footnotes:

1. http://www.hktdc.com/resources/MI_Portal/Article/rp/2015/11/472180/1447903772282_472180CentralAsianMarkets2e_472180.jpg

2. The New Silk Road Becomes the World Landbridge, by the editors of Executive Intelligence Review (2015).

3. http://www.atimes.com/atimes/South_Asia/MH05Df02.html “US Business Guru Loses Afghan Battle,” by Mark Perry, Asia Times, August 5, 2011.