Daniyar Kosnazarov, Sino-Russian \'Division of Labor\': Keeping Central Asia Stable?, Silk Road Reporters, February 16, 2015

Sino-Russian 'Division of labor': Keeping Central Asia Stable? Daniyar Kosnazarov 16 February 2015

Every Central Asian state is concerned with the Ukraine crisis, as it affects their economies due to influence of Russia, starting from remittances decline to effects of weak rouble to local producers. Anxieties over possible second devaluation of Kazakh tenge occurred during last months of 2014 led to a massive dollar purchases by ordinary citizen and these concerns still are not addressed properly, even if the de-dollarization measure was taken by the government. It was also quite unexpected to see Turkmenistan devaluing its national currency manat during New Year celebrations, even if it is least dependent country from Russia in terms of exports. However, analysts argue that devaluation decision was made due to what is happening with Russia now Despite earlier criticism of the Eurasian Economic Union and 2012 withdrawal from CSTO, Uzbekistan were compelled to ease tensions with Moscow, not only because of possible serious geopolitical implications of ignoring Russia on the eve of 29 March 2015 presidential elections, but simply due to economic problems, as Uzbek textile, car, fruit and vegetable exporters started loosing profit due to restrictive measures taken by Russian government entities. During Putin’s visit to Tashkent on 10 December 2014, presidents of both countries were very much keen to solve many issues, leading both countries to declare that consultations on establishing free trade zone between Uzbekistan and EEU would begin soon. Kyrgyzstan is preparing to get EEU membership, while his currency som lost 17 percent against the dollar in 2014. By joining Eurasian Union Kyrgyzstan attempts to benefit from common labor market as it will help to work in other EEU countries without work permission.

Combined with low oil prices, the whole atmosphere now in the region is so ‘back to wild 90s’, thanks to above mentioned problems. One of the closest Moscow allies Kazakhstan is preparing itself for difficult times, while heavily pushing his economy to diversify. Kazakhstan launched the new economic policy as the counter-measure with an emphasis on infrastructure development. It is no coincidence that Astana starts to pay a high-level attention to infrastructure, as his southern neighbor China initiated “Silk Road Economic belt” project in 2013, the basic intention of which is to re-assure Chinese expansion to Russian and European markets through land routes while securing the supply of raw materials from Central Asia. The establishment of $40 billion Silk Road fund further induces Central Asian states to make infrastructure development a priority, while it will bring many crucial benefits for Beijing as well, such as more efficient use of its huge foreign-exchange reserves. Regional states seek to benefit from Chinese aspirations to link Eurasia and Europe, while trying to earn extra cash from being a ‘transit hub’, a fashionable term in Central Asia nowadays. Astana is paying much attention to “Western China-Western Europe” highway and definitely will do the same for $242 billion Beijing-Moscow high-speed rail link passing through Kazakhstan. Even Turkmenistan, while keeping its neutral state status, strives to be as active as possible, supporting the construction of Turkmenistan-Afghanistan-Tajikistan railroad and preparing to intensify trade with Caspian states via recently launched KazakhstanTurkmenistan-Iran railroad. Turkmens also interested in joining Baku-Tbilisi-Kars transport project, while developing its fleet, including ferries required to carry passengers and freight to Baku. Despite serious intentions to diversify energy export routes via building TAPI and TransCaspian pipeline, an uneasy task considering the Afghanistan instability and unsolved legal status of Caspian sea, China represents the reliable partner for Ashgabat. It is expected that by 2020 annual gas exports of Turkmen gas will increase to 65 bcm, making China in a way a ‘monopolistic consumer’. Consequently, Central Asian states’ economic capability in upcoming years surely will depend on two things: first, how Russia will tackle Western economic sanctions and low oil prices, and second, Chinese demand for energy resources and market expansion. While Eurasian countries are becoming strongly dependent on China in their pursuit to sell energy resources, including Russia with “Power of Siberia” project, they try to be less dependent on just selling raw materials, particularly by means of engaging in Chinese infrastructure projects and earning money from being a transit country. This creates quite unique situation for Eurasian Union, as its’ performance in many ways will be sustained by economic relations with China, including Russia. One could think that the logic of regional integration, therefore, could be undermined, as Union becomes too

dependent on a power, which is not part of the integration, but who can easily affect its destiny. Union’s common market could easily become so solely to China, making all protective measures ineffective in a way. Maybe there is also a risk that ‘resource curse’ country like Kazakhstan will create new addiction for itself and will become ‘transit cursed’, thus, vulnerable to European demand and PRC’s growth rate. These issues should be explored further, but the situation also reflects the ongoing shaping of longer term relations with the world’s biggest economy, who is also an immediate neighbor of Central Asia. Noteworthy, Central Asia is facing new reality, where region is affected by the second reality that China is becoming more self-confident in pursuing world power status with a bunch of Sinocentric structures, served as alternatives to Bretton Woods system, as seen from the establishment of New Development Bank, Asian Infrastructure Investment Bank, BRICS and efforts to RMB internationalization. One of the effects of such alignment is that Central Asia is acquiring the traits of the region lost gradually in last 20 years, thanks to still unsolved border and water issues, trust deficit among leaders. For example, China-Central Asia gas pipeline, consisted of 4 branches, create integrity among state territories in the region, as was during Soviet times when Unified Energy System functioned properly. As a large consumer and investor, China would do much to avoid any interruption of energy supplies, thus, it would be no surprise that Beijing will be irritated by instability in Central Asia. This will lead leaders of Central Asia to understand that big conflicts in the region will only disappoint China, although it become used to vulnerable environment in Pakistan, Sudan, Iraq, etc. But as China is getting used to perceive itself as the world power, it is highly possible that Beijing might not tolerate default on obligations (breach of duty) by partners in the future. Beijing could have a lot of money, but one should not wait that he would continue to close its’ eyes for further heavy losses of cash due to instability. If to give recent example, as the result of ongoing clashes in Ukraine, the delivery of grain from war-torn country was delayed, forcing China to demand refunding of $1,5 billion in cash. Beijing advanced this money to Kiev as a payment for growing and shipping grain to China. It is also unclear what will be the prospects of military-technical cooperation between two countries. Therefore, recent engagements with Afghan and Pakistani governments and hosting talks with Taliban in China is a clear sign that Beijing will do his best to avoid deepening of new conflicts in the places important to Chinese interests. Consequently, the discussion of law proposal to let Chinese troops head overseas to fight terrorism signals Beijing’s security concerns require proper and legal mechanisms to protect Chinese presence abroad. If to return back to Central Asia, such structures as the SCO and CSTO are gaining new significance as security guards of Chinese economic activity in the region. These organizations is under critical transformation now, as China and Russia decided to include India and Pakistan to the SCO, the formal acceptance is expected to be completed during June 2015 summit in capital of Bashkortostan, Ufa. Expanded version of SCO will definitely

militarily and politically boost the organization, as Delhi and Islamabad represent major regional powers in South Asia, alongside with having nukes. Quite recently, Russian foreign minister S.Lavrov stated that Iran could become member of SCO as well, if Western sanctions on Tehran would be lifted. Expansion of SCO will definitely affect the agenda of the organization, putting more focus on global issues, stressing Chinese ambitions to become world power under Xi Jinping. As for CSTO, it will preserve the regional agenda, putting emphasis on maintaining stability in Central Asia via military bases in Tajikistan, Kyrgyzstan, Armenia and related military infrastructure in Kazakhstan and Belarus, many of which Russia tries to modernize and keep active. It is no coincidence that these states are members of Eurasian Union, as in the case of Kazakhstan and Belarus, or would-be-members (Kyrgyzstan and Tajikistan). While fights in Ukraine continue, instability in Central Asia will put Russia in constrains, leading to spend resources and energy in the second war front. Moscow explicitly voices its concerns about Afghanistan, arguing that “Islamic State” militants could destabilize region, pointing to Turkmen-Afghan and Tajik-Afghan border areas, which experience skirmishes. In that respect, we can clearly see that Beijing has something in common with Russia: keeping Central Asia stable. Due to Western sanctions and low oil prices Moscow is in a strong need for Chinese investments, while Beijing wants to keep energy flows going from Central Asia without interruption and continue building roads and railways. Actually, the similar pattern of cooperation is taking shape in Central America, as construction of Nicaragua canal has started recently. While China will invest money to build the canal, Russia would provide military security, thanks to official Nicaragua permission that allow Russian fleets to patrol the Pacific and Caribbean coasts of the country. Maybe this kind of ‘division of labor’ is being implemented by both powers in Central Asia, leading Beijing to ‘outsource security’ to Russia and help Moscow to ease the influence of economic slowdown and stand firmly against West. If it is really so, then this is exactly how strategic allies behave in order to weaken common rivals and help each other in pursuing global interests.