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30 May 2023

China Scores High in the New Great Game over the East-Caspian Region

Overlapping high-level meetings saw both China and the EU separately working on economic cooperation measures with five Central Asian countries. But that doesn’t mean that Russia has been sidelined, argues Charles van der Leeuw.

China Scores High in the New Great Game over the East-Caspian Region

Image: president.kg

History repeats itself, but though the players remain the same, the games they play are shifting. During the 19th century, Russia expanded its clout in Central Asia by building infrastructure and industry, along with occasional military clashes with local medieval potentates, half-heartedly supported by Britain. Now, Russia shares its legacy with China, and the latest China-Central Asia summit shows that both of them mean business—literally speaking.

The summit in the ancient Chinese city of Xian brought together the presidents of all five ex-Soviet Central countries last week at the invitation of Chinese Premier Xi Jinping. Chinese media outlets noted that in the past year, China’s trade with the five republics was valued at the equivalent of over $70 billion, up by a hefty 40% from the previous year. Kazakhstan topped the list with $31.17bn, up 236%, followed by Kyrgyzstan with $15.5bn, up 105.6%. Next comes Turkmenistan with $11.1bn (up 52%) and Uzbekistan with $9.7bn (up 21.8%), while Tajikistan bottoms the list with $2.6bn, up 40.4%. China mainly imports commodities from Central Asia, while its exports to the region mainly consist of household and industrial equipment.

As of the end of March 2023, direct Chinese capital investments into Central Asia had reached just over $15 billion, but this amount excludes the money poured into construction and development projects such as the oil and gas pipeline, power lines, road and railroad networks, factories, farms, and retail grids, which altogether amounted to an impressive $63.9 billion.

Russia is Fully Within the Game

Commentators from Western media outlets tend to draw the erroneous conclusion that China could be trying to sideline Moscow. In fact, in 2022, the trade turnover between Russia and the Central Asian countries increased by 20%, amounting to US$41 billion, according to Deputy Minister of Foreign Affairs of the Russian Federation Mikhail Galuzin in his address to the recent 3rd Central Asian Conference of the Valdai International Discussion Club in Tomsk. Such numbers amply illustrate that Russia remains fully within the game.

“In 2022, Russian direct investments in the economy of the area totalled more than US$3.6 billion. The accumulated investments since 2015 are estimated at US $25 billion. Investments of Central Asian countries in Russia also increased 4-fold and reached more than US$4 billion. More than 10,000 Russian and joint ventures operate in the region, over 900,000 jobs have been created,” the official declared.

EU on the Crossroad

When it comes to cash flows, the internal circuit of the ‘Transcaspian Triangle’ (Russia, China, and Central Asia) has become more or less on par with the combined capital inflows from the EU, the U.S., and sources such as the World Bank, IMF, and Asian Development Bank. In particular, the European Union appears to stand on the crossroad in this regard, faced with the choice whether to remain a competitor or a team player in the XXI-Century style Great Game.

Timed such that it overlapped with the Xian summit, a second EU-Central Asia Economic Forum was held in Almaty, Kazakhstan on 19 May. There Kazakh Prime Minister Alikhan Smailov mentioned that the EU is one of the country’s largest and major trade partners, accounting for approximately 30% of Kazakhstan’s foreign trade. In 2022, trade turnover between the two sides increased by more than 38% to around $40 billion.

With a 12.5% growth to $10 billion recorded in the first three months of this year, the country is gearing to expand its export range to Europe on 175 commodity items worth approximately $2.3bn. Last year, the volume of direct investment from the EU in Kazakhstan’s economy rose by almost 23% to $12.5 billion, a record high for the past decade, the PM reported.

Currency Swap Agreements

One element not to be overlooked is a fresh agreement between three Central Asian states to move away from using the US dollar to denominate trade and investment accords. The trend could go further, the China Daily noted: “Local currency settlements between China and Central Asian countries now have a development opportunity as the trend of de-dollarisation accelerates while local currency settlements can save both sides foreign exchange reserves that can be used for external debt repayments.” The People's Bank of China, the country's central bank, has signed currency swap agreements with its counterparts in Kazakhstan, Uzbekistan and Tajikistan which are likely to set the stage for wider use of the Chinese currency (renminbi/yuan) in Central Asia.

Other Outcomes from Xian

The Xian summit agreed that cooperation will be sought with parallel organizations such as BRICS, the Shanghai Cooperation Organisation and the Eurasian Economic Union. All three include Russia, suggesting that no estrangement from Moscow is envisaged.

“Russia holds a positive attitude to China's cooperation with Central Asian countries,” said Zhao Huirong, an Eastern European studies expert from the Chinese Academy of Social Sciences, quoted by China’s Global Times. Indeed, the perception is that Moscow is attaching growing importance to China's positive role in pushing prosperity and stability in Central Asia. “Cooperation between China, Russia and Central Asia is a process of mutual engagement, and not spearheaded by any one country. For Central Asian countries, they stick to diverse diplomacy; they wish to cooperate closely with China and maintain friendly relations with Russia, there's no contradiction in such motivations." 

The next China Central Asia summit will be held in Kazakhstan in 2025.


By Charles van der Leeuw, co-founder of Caspian Business News (Baku) and author of Cold War II: Cries in the desert – or how to counterbalance NATO’s propaganda from Ukraine to Central Asia (2015).