China and Russia Compete in Central Asia

The Silk Road Economic Belt Initiative vs Eurasian Economic Union

Patrick Morgan

Will competition foster friendship or escalate tensions?

In November 2014 Chinese President Xi Jinping added further detail to his plans for the Silk Road Economic Belt (SREB) initiative, a plan that had been referenced but up to that point never clearly defined. The project incorporates two main routes. The first is a sea route that will help transport goods to Europe by developing ports across South Asia. The second route, the focus of this piece, is the road route that will travel through central China to the western Chinese region of Xinjiang, and then onward through Kazakhstan,Kyrgyzstan, Tajikistan, Uzbekistan and Turkmenistan to Iran, before going through Turkey into Europe. However, with the SREB the most direct challenge to Russia's traditional influence in the region, it looks set to create tension.This is compounded by the fact that the initiative is in many ways in direct competition with Russia's own new economic initiative, the Eurasian Economic Union (EEU).

To understand the increased tension it is essential to understand the methods and motives behind both initiatives.China's aims for the SREB are simple: to open new markets and connect more efficiently to existing ones. It achieves this in two ways. Firstly, through huge levels of investment in infrastructure, and secondly, by developing industry and businesses across the region.

The infrastructure projects are to be implemented using funding from the newly created Asian Infrastructure Investment Bank (AIIB). So far China has already invested significant amounts into infrastructure projects, one example being the Pap-Angren Railway. The project's total cost is US$1.6bln. Uzbekistan, through its state railway company and development fund, will provide US$1.08bln, while US$195m will be provided by the World Bank and China's Exim Bank is contributing US$350m. Other examples are the agreement to fund a north-south railway in Tajikistan, the pre-existing Chinese-funded Xinjiang to Kazakhstan routes and motorway construction in Kyrgyzstan. These projects and others require a huge amount of investment and China is providing the lion's share, emphasising its commitment to the SREB.

The SREB is also set to provide crucial investment in business and industry. China is already the leading investor in Central Asia, eclipsing Russia as the main trading partner in four of the five Central Asian states in 2013. For the last two years China has been signing multiple agreements on economic cooperation. On 27 March Kazakhstan and China signed agreements valued at US$23.6bln, covering the nonferrous metals,hydro-power, sheet glass, steel, automobile production and oil refining industries. This increased diversification of industrial investment is vital for China as its rapid growth requires an increasingly large supply of resources. Kazakhstan and Turkmenistan are oil- and gas-rich nations and as a result have received significant funding from China, particularly in the creation of pipelines to supply China. This thereby increases the Central Asian states' reliance on China, granting China greater influence and control over the region.

China's economic motivation for the SREB initiative is clear. It is hoped that the annual trade volume of both sea and land routes will surpass US$2.5 trillion within a decade. However, the motives behind SREB are not just economic, as further integration with China will bring its neighbours under its influence while providing security and increasing its political power both regionally and internationally. In addition to fostering good relations with China, this increased wealth will also make the former Soviet Central Asian states more susceptible to Chinese political influence due to a fear of economic loss. It has been suggested by leading Chinese scholars  that peripheral diplomacy is now the most important priority in Chinese foreign policy, and the SREB is a major vehicle for this. It is this change in priorities that is likely to increase tensions in Central Asia.

This tension stems from the opposing nature of Russian and Chinese initiatives. The Russian-backed EEU is a protectionist economic solution that will push for tighter border controls and unify tariffs on goods from outside the bloc, essentially the opposite of the SREB. As both initiatives grow they will increasingly conflict with each other; Russia will use its political power to keep the Central Asian states under its influence,but China's investment and wealth is more economically beneficial and will erode Russian leverage. Although there is an undeniable conflict of interest, a souring of relations or direct action between Russia and China is highly unlikely. Although both nations act in conflicting ways, they are also interdependent. Russia increasingly looks to China for economic opportunities,while China needs Russia as an ally in disagreements with the West.

In Central Asia, Russia's power and influence stems from its military and political will, and shared culture. However, as recent events have shown, Russia is economically vulnerable and cannot thrive when it is isolated. With Russian-Western relations likely to remain cold at best for the foreseeable future, Russia is increasingly looking east for trade.Incidentally, the Central Asian nations' economic dependence on Russia has pushed them to look for alternative economic partners. The SREB will allow China to fully exploit this opportunity, offering not just investment but also diversification. For Russia, China's trade is too important to jeopardise and it is only growing, thereby making Russia keen to avoid tensions over Central Asia. It is worth nothing that China and Russia already are cooperating through various economic and diplomatic channels, an example being the Shanghai Cooperation Organisation (SCO), which could still develop into a vehicle aimed at guaranteeing the interests of both Russia and China, if the necessary political will can be found.

Overall, China's is the most promising initiative as it has the political will combined with the economic power to achieve its goals. Russia, on the other hand, does not have the economic clout to match its regional political ambitions, which will likely only be aggravated if its foreign policy continues to antagonise Russia's relationship with the West. For the immediate future there will be little change: the SREB will continue to develop and investment will increase, while the EEU will mature,although its developments will be more political than economic. Over the medium term, however, tensions will escalate between China and Russia. The question is to what extent Russia will accept dividing its Central Asian sphere of influence with China. Given China's growing economic advantage and the changes in the geopolitical order driven by Russia's increased assertiveness in Europe,a form of compromise that allows for Russia to continue in a leading role is more likely. Over the long term, however, Central Asia is likely to prove the testing ground for the true extent to which Russian-Chinese bilateral ties can grow, or to what extent they may fray – efforts to manage competing interests could drive the Russian-Chinese friendship towards alliance if they succeed, yet could also drive it towards conflict if they fail.

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