How China is recapturing Central Asia from Russia

To do this, China doesn't need weapokins, billions of dollars of investment are enough. 
"Standing here <...> I can almost hear echoes in the mountains ringing camel bells, and I see a trickle of smoke rising in the desert" - fantasized Chinese President Xi Jinping during his visit to Astana, Kazakhstan two years ago. But the play of imagination is not limited to: the Chinese leader called on to create this "magic land" new "economic times."

Announced at the same time, in 2013, the project "One Belt One Road" was one of the main long-term economic Xi ​​initiatives. It provides for the creation of two transport corridors: "Economic belt of the Silk Road" (EPSHP, the development of trade in the areas of land connecting China with Europe) and the "Marine Silk Road of XXI century.". If the latter will fall away from the Russian border and traditional zones of influence, it must first pass through the territories of the former Soviet Republics - countries of Central Asia.

Economic replacement

Has invested billions of dollars in Central Asia, China can change the alignment of forces in the region, whose economy in recent years strongly postRADA due to falling commodity prices and recession in Russia. However, the growth of Chinese influence ambiguously perceived in some Central Asian countries, and in Moscow, which is trying to convince them to join the Eurasian Economic Union (EAEC). Economic expansion may carry risks for China: the more he invests in the region bordering Afghanistan, long-term stability which is in question, the greater the likelihood that it can be drawn into the solution of political, military issues and get security problems .

In China, a record market share of investors who trade on the stock exchange at least once a month - 81%. This reduces the stability of the stock market.

"So it may be unintentionally Chinese empire. They are, without a doubt, become the most important geopolitical player in this part of the world, - says Raffaello Pantuchchi, specialist on the region of the Royal United Services Institute. - I do not think they appreciated all the long-term consequences. "

Western interest in the region is reduced, and the possibility of investing in Russia it is limited because srecession. China is in the past decade, there has become a leading economic power. The trade turnover between China and the five Central Asian former Soviet republics - Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan has increased, according to the IMF, with $ 1.8 billion in 2000 to $ 50 billion in 2013 and then decreased slightly due to a fall commodity prices (see. chart). Nevertheless, it is still a few years ago exceeded the turnover of these countries with Russia. The governments of some of them can now be seen Chinese investment as the last chance to stimulate the economy and maintain political stability.

China's investment in infrastructure in developing countries can be almost the only hope for the economic recovery of the past, says David Lubin, chief economist for emerging Citigroup Markets: "They acted so far economic growth model has failed, they have a huge shortage of quality infrastructure and many fairly stable financial position. If you add these elements, you can get quite a reliable source of growth. "

If you evaluate andthe Investment needs of the Central Asian countries, China's participation seems to be "to put it mildly, very important," he agrees Agris Preymanis EBRD economist for Central Asia: "China's activity in all sectors is growing, and it is impossible to imagine that the Western or Russian capital will take the place of the Chinese."

Chinese officials deny that, realizing their economic projects are geopolitical game points Lubin: "But they are, of course, suggest that thus lays the foundation Pax Sinica - a huge friendly China Economic Space, which the speaker depending on preference It can be considered as "community countries, united by common interests," or "worship band".

Investment in land

In Kazakhstan, the share of Chinese companies already account for 20-25% of oil production - slightly less than the share of the state "KazMunayGas". In Turkmenistan, China replaced the "Gazprom" as the main buyer of gas (61% of exports from the country in 2014 en route to China). In many ways it was usedThanks to the discovery in 2009 of the gas pipeline Central Asia - China, built mainly on Chinese loans; Now it built its fourth branch, to be held from Turkmenistan through Uzbekistan, Tajikistan and Kyrgyzstan. In the latter two countries, Chinese companies have invested in oil refineries and cement factories, they also invested in the construction of roads and tunnels in the region.

Chinese investment in Kazakhstan, Uzbekistan and Turkmenistan exceeds Russia's 10.7 times - and the balance will not change in the future in our favor, indicating professor at the Higher School of Economics, economist Vladislav Inozemtsev.

on investment data sketchy because many agreements are concluded at the bilateral level between the Chinese state-owned banks such as China Development Bank and China Export-Import Bank (by the way, Beijing recapitalize them to increase the activity - each about $ 50 billion), and governments or state-owned companies the Central Asian republics. However, for example, a year ago, First Deputy Finance Minister TadzhikisThane Jamoliddin Nuraliev told Financial Times (FT), that for three years, China will invest in the country at least $ 6 billion. This amount is equivalent to two-thirds of Tajikistan's GDP and more than 40 times the annual inflow of foreign direct investment into the country. According Nuralieva, the money will be spent on construction of the pipeline, railways and cement plants. He acknowledged that Tajikistan could fall into economic dependence on China, but he needed to offset the effects of the recession in Russia and reduction of remittances from its Tajik workers, which accounted for about 45% of GDP. "We denote the boundary [for the expansion of China], but not today. We need to balance the risk of one another ", - he said then Nuraliev FT.

When this summer's foreign exchange reserves of the central bank of Tajikistan have fallen to critically low levels, he signed an agreement on currency swap to 3.2 billion yuan ($ 500 million) from the People's Bank of China.

And when in August Kazakhstan refused to peg the tenge against the dollar and the exchange rate fell by more than 20%, Astana priority was to reassure Beijing. "Where the President of Kazakhstan made the first visit after thisabout solutions? Who primarily convinced that the investment will not be affected? China ", - said chairman of the Central Bank of Kazakhstan Kairat Kelimbetov.

Russia can not - help China

Due to the decline in oil-exporting its economic growth in Central Asia prices - Kazakhstan, Turkmenistan and Uzbekistan - will slow to 3.8% from 5.5% this year, in 2014, the IMF predicts. It is surprising, but oil importers - Armenia, Georgia, Kyrgyzstan and Tajikistan - it has to slow down even more, from 4.7 to 2.3%. The IMF explains this paradox by the fact that oil and gas importing countries more affected by the recession in Russia and the fall of the ruble. In particular, remittances (mainly from Russia) provided respectively 43 and 30% of Tajikistan's and Kyrgyzstan's GDP in 2014, the fund said. But in the first six months of 2015 remittances to Central Asia and the Caucasus decreased by 25-50%. A large presence of migrant workers in Russia makes the country vulnerable to the risk of rising unemployment and social tension if workers are forced to return home, the IMF warns. In general, the countriess - oil importers not benefited from the fall in prices on it, while exporters are much less affected by the recession in Russia, according to the IMF experts. Countries in the region are urgently needed structural reforms, says Chris Weafer, a senior partner at consulting firm Macro-Advisory, which specializes in Russian and Eurasian. They can also benefit from the recovery of the economy of Iran, the growing interest in the region of India, but above all - the Chinese project "One belt one way," said Weafer. Under the latter, China is investing billions of dollars in infrastructure improvements and trade links in the region. FT, Alex Nevel

However, the journey along the Silk Road can not always go smoothly. The proposal to hand over to China to rent a large area of ​​land in Kazakhstan under the agricultural production in 2010 caused protests. "Any attempt to increase the influence of China in Kazakhstan will strengthen anti-Chinese sentiment," - said Kazakh political scientist, director of the Risk Assessment Group Dosym Satpayev.

The door opens wider

Despite such Fearingof, it is on the border of China and Kazakhstan established a transport and logistics center "Horgos", which is to become China's new gateway to the West. "Here, East meets West. It is a link, "- says Hisham Belmaashi, commercial director of built in" Khorgos "so-called dry port for transshipment of cargo shipped from China to Central Asia, Europe and the Middle East. Facility staff is able to overload the cargo from China to train Kazakh (this is necessary because of the different track width) in just 47 minutes, boasts Belmaashi.

Management «Khorgos» state railway company Kazakhstan KTZ has invested in the construction of the port 245 billion tenge ($ 900 million); he began to operate in August. A government of Jiangsu province, located on the east coast of China, promised to invest $ 600 million over five years to the creation of logistic and industrial zones in the "Khorgos" (their construction is planned for 2014-2016 and 2016-2022 gg., Respectively). He can become a hub for regional and international trade, said the formerFirst director of the regional division Deloitte Darryl Hedauey, begins to develop its own logistics business focused on Kazakhstan. According to him, the motion activated by this route can stimulate the transport of goods that are not delivered before, such as perishable foods, such as fruits and vegetables.

According to KTZ, the number of containers transported by rail from China to Europe via Kazakhstan has increased in 2011-2014. 18 times and will double this year. The route is attractive, for example, electronics manufacturers such as HP (company has long been in favor of its development), are willing to pay for a reduction in delivery times. It takes 14-16 days versus months or more by sea, although it is more expensive: the cost per container - $ 9000 and $ 3000 respectively.

The total cargo traffic from China to Europe will grow in the years 2010-2020. 45% to 170 million tons forecast in the "Khorgos". Kazakhstan's task in 2020 - to attract 8% (15 million tons), of which more than 10 million tons will go through the "Khorgos", the presentation of a special economic zone "orgos - Eastern Gate ". Now 98% of goods from China to Europe are delivered by sea.

New roads for the money

Implementing the project EPSHP China expands the list of objects for investments in Central Asia, experts say. "If they had been concentrated in the oil and gas sector, now go to the infrastructure, industry, agriculture, tourism and other areas," - said Dean Saosin, Director of the Central Asian programs at the China Institute of Contemporary International Relations.

EPSHP strategy is based on three pillars: infrastructure, resources (raw materials import and export of Chinese products) and the creation of conditions for the mutual exchange of innovation, says Oleg Remyga, Project Manager of the Institute of Research in emerging markets "Skolkovo" business school "Important topic in the Chinese economy - program "Made in China 2025", which implies the construction of an innovative industry. To do this, they need to decide on the one hand, how to create markets for its innovative products, and on the other - as "pulling brains", youokie technology from countries participating in the EPSHP strategy (here in the first place Russia and Kazakhstan, where, for example, has a lot of work in the field of green energy companies). "

The Russian response

The Russian authorities have traditionally been considered near abroad sphere of their interests. When EPSHP Initiative was announced in Moscow perceived as a challenge to its own integration project - EAEC convinced Zhao Huasheng, director of the Center for the Study of Russia and Central Asia in Fudan University. "China has provided detailed explanations. He believes that these projects should be developed in parallel, in a spirit of cooperation, "- reminiscent of Zhao.

Xi visited Moscow on a visit in May and signed by President Vladimir Putin, a joint statement on cooperation in the construction of the EAEC and conjugation EPSHP. The agreement was the result of intense discussions in the Russian government, the head of the program "Russia in the Asia-Pacific region," the Moscow Carnegie Center Alexander Gabuev: "The Kremlin hopes for a division of labor between Moscow and Beijing in Central Asia & raquo ;. The idea, according to experts, is that China will be the main engine of economic transformation, and Moscow will remain the main guarantor of security.

"I do not see what there may be a subject for serious negotiations", - says the analyst, the editor of "Russia in Global Affairs" Fyodor Lukyanov. In his opinion, it is actually a statement of the existing balance of forces. Political and Security no approvals are not necessary: ​​China does not think in terms of power spheres of interest and categorically does not want to make commitments in these areas, he said. "Of course, Russia would affect the economy of the Central Asian countries on an equal basis and to be a leader, but in terms of economic opportunities for Russia to China is objectively not a competitor, but for him there, and no one else is a competitor. Expansion of the Eurasian Union on some of the Central Asian states (hypothetically could be considered Tajikistan and Uzbekistan) is faced with a number of objective and subjective obstacles ", - the expert explains.

Of course, countries compete for access to energyESOURCES in Central Asia continues Lukyanov. But in Russia for a long time the main goal in this fight was to keep out the Central Asian gas to Europe, and the Chinese market is not interested in her. Now would seem that the situation has changed, Russia has decided to go with the gas to Asian markets and competition could escalate. "But it is vague. If six months ago, there was a feeling that Russia put an end to energy cooperation with Europe and turned to the East, it now has a cross does not seem so bold, and turn not so obvious, "- says Lukyanov.

The main difference of opinion on the Silk Road - Russia insists on cooperation through China - the Eurasian Union, and China considers it possible bilateral cooperation with each country separately, and the Central Asian states are not against such a model, he recalls.

Russia is trying to make it clear to China that the development EPSHP it is better to cooperate with the EAEC, says Remyga. The agreement on the formation of the union came into force on 1 January 2015 its member countries - Russia, Kazakhstan, Belarus, Armenia and Rupriziya agreed to coordinate their policies, including when dealing with China, he said. The Chinese are used to interact on a bilateral level, as they have done for a long time, and yet not have acquired mechanisms of interaction with the countries of the union. In cooperation with China within the framework of the Eurasian Union EPSHP focuses primarily on the development of infrastructure and here you can find points of mutual interest, said Remyga.

In addition, of course, Russia believes that the development of the Silk Road will attract Chinese money into projects on its territory - and, as the words of officials, not just those associated with infrastructure.

Cooperation EPSHP and EAEC will be the basis for creating a common economic space, assured in the BRICS their Russian counterpart Ministers of Industry last week - Industry and Trade Minister Denis Manturov. In his view, after the special mode of investment legislation will be harmonized in the field of traffic and developed for companies in the areas of cross-border cooperation, and later- And a free trade zone, in front of all the countries through which pass the Silk Road, will open great prospects.

The Asian Development Bank has earmarked $ 8 billion for transport infrastructure projects in the framework of the project EPSHP reminds Industry and Trade Ministry's press service.

Russian projects of the most different industries it is necessary to "zabrendirovat Silk Road" and submit to the Fund of the Silk Road and the Asian Infrastructure Investment Bank, said Deputy Economic Development Minister Stanislav Voskresensky, speaking at a recent meeting of the RSPP Committee on International Cooperation. The Committee will develop recommendations on the participation of Russian business in the projects on construction of conjugation of the Eurasian Union and EPSHP.

The Eurasian Union will make the Central Asian republic more attractive for China, as Chinese companies located here have direct access to the Russian market, while the motives of the Russians seriously invest practically not occur in Kazakhstan, says Inozemtsev.

"In this situation,s, in my opinion, is already in 5-7 years we will see in the East about the same situation, which is now so annoying us in the West. Just as the European Union incorporates not only the former Soviet allies, but even some Soviet republics, EPSHP will compete with the Eurasian Union as well as cooperation with China will open more possibilities than with Russia, "- he wrote in an article for gazeta. ru.

China, with the growth of its economic presence can be difficult to stay away from addressing issues of regional security, analysts say. He has already started to provide military assistance to Kyrgyzstan and Tajikistan. "Although this is an economic project, it can exert political influence - recognizes Professor Zhao. - I think China will actively participate in ensuring security in the region. But this does not mean that it will participate in military terms. "

"China's foreign policy is aimed primarily at meeting domestic needs. To do this they need and markets, providing resources. While this can be solved in Central Asia, theyUdut invest money there. Russia is dealing with an objective process, and can either stand aside or to participate in it, defending its own interests ", - says Remyga. For this reason, he believes, in the Central Asian relations are developing in the spirit of partnership, in contrast to Russia's relations with the countries to the west of its territory, where it conflicts for influence in the former Soviet republics.