Analytical materials / Uzbekistan

Ruslan Izimov: Role and place of Uzbekistan in the Central Asian policy of China

14.03.2016

If vital transport arteries linking Beijing with its strategic partners in the Gulf and Europe pass through Central Asia, particularly through the territory of Uzbekistan, China itself will be interested in the stability of this region. This means that Beijing will not destabilize the situation in the region, moreover, it will allocate funds for keeping stability in the event of a regional force majeure, – an analyst from CABAR.asia discusses the role of Uzbekistan in China’s geo-strategy.

izimov1Today, China has become a vital partner for all five republics of Central Asia. The level of dependence of Central Asian countries on China is increasing, but the degree of this dependence varies considerably.

Despite the actively growing ties between Tashkent and Beijing, China’s influence in Uzbekistan is the lowest compared to all the other countries of Central Asia. The investments received by Tashkent from Beijing’s are spent very efficiently, and large Chinese MNCs and Chinese business are present in the Uzbek economy in a very concise and focused form.

At the same time, at this stage, there are new circumstances that can change the status quo. In other words, there are conditions for the rapid expansion of China’s investment presence in Uzbekistan and throughout the Central Asian region. Beijing funds invested in the creation of an extensive transport and energy infrastructure are forming a new reality, in which China is gradually becoming a guarantor of economic prosperity in the region.

In this situation, the foreign policy of Uzbekistan, based on equidistance from all “centers of power”, may also undergo some changes. What place is given to Uzbekistan in the new Silk Road strategy? How does Uzbekistan assess the prospects of its cooperation with China? These and other aspects of the Uzbek-Chinese cooperation at the present stage are covered in this article.

New accents in strategies of Tashkent and Beijing

China’s policy in Uzbekistan and in other countries of the region is not burdened with the requirements and the desire to influence the domestic political processes. This, in turn, does not give any reason to the Uzbek authorities to somehow distance themselves from China, as it was in the case of Russia or the United States over the years. However, over the past two decades, the Uzbek government has tried to balance the position and role of China in its economy and foreign relations by actively involving other regional powers. Nevertheless, during the last two years, after the mutual visits of Xi Jinping in Uzbekistan (September 2013) and of Islam Karimov in China (August 2014), the situation began to change gradually. Today we see the role of Beijing, as a balancer in the foreign relations of Tashkent, rapidly growing. The Uzbek-Chinese investment relations are significantly expanding, energy cooperation is growing, and a number of major transport and logistics projects are approaching their practical stage.

In the light of Beijing’s new foreign policy strategy implemented in the framework of the Silk Road belt concept, there is some confusion of accents in the regional policy of the PRC, where Tashkent receives a more prominent place. This thesis is supported by new trends in Chinese-Central Asian relations. Judging by a number of foreign policy moves and actions of China, more active participation of Uzbekistan can balance a clear priority given by Beijing to Kazakhstan in its regional policy. This thesis, although not yet having a clear framework because it is at the stage of formation, deserves more attention.

There are several conventional areas, in which China has a particular interest in the Republic of Uzbekistan.

 Important link in the transport interchange

Putting forward a brand new foreign policy initiative of the Economic Belt along the Silk Road, the Chinese government focuses on the need to form powerful transit and transport corridors in the western direction. The so-called “central route” of the Chinese Silk Road passes through the territory of Central Asian countries. Based on the objectives of their project, China currently wants to more closely integrate Uzbekistan in regional transportation projects.

In the context of China’s increasing dependence on energy imports, Uzbekistan’s role as a source and a transit country increases dramatically. In particular, in recent years, China has vigorously been promoting a project of construction of the China-Kyrgyzstan-Uzbekistan railway. So far, participants do not share the same vision for the construction of this project. But in the near future, the parties can find a compromise, and the railroad can be built. In addition, China has invested heavily in transport projects in Uzbekistan.

At the moment, Uzbekistan is constructing a tunnel through Kamchik, and according to the plan, the line “Angren-Pap” will begin to work already in the spring of 2016 (the railway will pass through the pass “Kamchik” and connect the Ferghana valley with the rest of Uzbekistan). Currently, there have been built and commissioned 285 water and 6 road flyovers, 13 railway bridges, a railway station “Orzu”, stations “Kul”, “Temiryulobod” and “Kushminor”. According to Xinhua News Agency, Chinese contractors are going to put the object into operation ahead of schedule.[1]

China has allocated a loan of $ 455 million for construction. It should be noted that the Uzbek authorities prefer to diversify the sources of investment. So in this case, the total cost of the “Angren-Pap” railway construction project was estimated as $ 1.68 billion, of which more than $ 1.08 billion is invested by “Uzbekistan temir yullari”, the Fund for Reconstruction and Development of Uzbekistan and the state budget. About 450 million in the form of loans was allocated by Chinese “Eximbank” and $ 195 million – by the World Bank.[2]

As for the railway China-Kyrgyzstan-Uzbekistan, the position of the Uzbek government remains uncertain. Although the Uzbek press began to increasingly write about this project.[3]

Meanwhile, this railway project, discussed during more than 15 years, is approaching to its practical stage. At least, the authorities of Kyrgyzstan and China have reached agreement and will begin to build this road in the current year. In this context, certain difficulties arise in Uzbekistan: if China and Kyrgyzstan will begin construction, the Uzbek authorities will have to make the final choice.

Several circumstances will contribute to the early adoption of a positive decision on Uzbekistan railway project. In particular, as noted above, a railway tunnel has almost been built with the participation of China. On the other hand, with regard to the economic downturn in Russia, Uzbekistan faced with a huge number of so-called “returnees”. These people must be employed, and the construction of the railway and related infrastructure, with Chinese financial assistance, could partially solve this problem.

Another major project, implemented by the two countries, is the construction of the pipeline “Central Asia-China”. Currently, the parties began the construction of the 4th branch of this gas pipeline. As we know, Chinese and Uzbek governments agreed on filling the pipeline with Uzbek natural gas, too. According to the Chinese press, CNPC and Uzbekneftegaz have estimated the value of the 4th line of the Uzbek part of the pipeline Central Asia – China as $ 800 million. This line will connect the existing infrastructure in Uzbekistan with a Tajik section of the gas pipeline “Central Asia – China”, which is under construction.

Uzbekistan apparently becomes an important transportation hub in China’s policy, which is now carried out in the framework of the strategy of “Economic belt of the Silk Road”.

Uranium interest

Until recently, the Uzbek authorities openly hampered China’s participation in the economic life of Uzbekistan. So, for example, compared with Kazakhstan, the level of trade-economic and energy cooperation between Uzbekistan and China is much smaller (the trade turnover between Kazakhstan and China in 2014 amounted to about 30 billion USD, and about 4.7 billion USD – between Uzbekistan and China).*

But, during the last two mutual visits of the heads of Uzbekistan and China, there was signed a package of documents and new agreements aimed at deepening bilateral cooperation in the energy sector and in the real sector of economy. “Development program of strategic partnership relations for 2014-2018” was adopted. In accordance with this program, the parties agreed to deepen bilateral ties, primarily in the energy sector.

As a consequence, today, China is seeking to expand its presence in the energy sector of Uzbekistan’s economy. One of the key sectors of the Chinese-Uzbek cooperation is a sphere of uranium. It all started with the fact that in 2009, the State Committee for Geology and Mineral Resources of Uzbekistan and Uranium Recourses formed a joint venture for geological exploration in Central Kyzylkum. Joint production of uranium in deposits of Uzbekistan began in 2014. Today Guangdong Nuclear Power Corporation is developing a promising uranium deposits in Navoi region with the introduction of new technologies of separate extraction of uranium and vanadium.

According to China’s General Customs Administration, the uranium supplies from Uzbekistan to China amounted to 1663 tons in 2013. Currently, Uzbekistan is the second largest exporter of uranium concentrate to China. In view of the Chinese government plans to increase the share of nuclear power plants in electricity production to 5% by 2020, increasing their capacity by 4 times, and according to calculations of the Uzbek authorities to increase uranium production to 4 thousand tonnes, it can be assumed that the uranium sphere will be one of the key sectors of the Uzbek-Chinese cooperation in the energy sector.

 Balanced investment

According to the Uzbek authorities, the volume of Chinese investment in the country’s economy is 35.6% of the total volume of attracted foreign investments, due to which China is the largest investor in Uzbekistan. However, at the same time, it is noteworthy that in the volume of external debt, Uzbekistan also maintains lower indices than other Central Asian republics.

Today, the external debt of Uzbekistan makes up about 16% of GDP, which is one of the lowest compared to other countries: Russia’s foreign debt is 18.8%, Kazakhstan’s – 17.2%, Georgia’s – 44.2%, Armenia’s – 52.8%, etc.[4]

With regard to China’s investment activity in Uzbekistan, there has been stable dynamics of growth. According to official statistics, more than 500 joint ventures created with the participation of the Chinese capital are working in Uzbekistan today, as well as branches of more than 70 Chinese companies.[5]

In addition, since September 2013, a major project for the construction of a special industrial zone “Jizak” has been implemented in Uzbekistan with the participation of the Chinese capital. Then, two years ago, there were signed 21 agreements on implementation of joint projects in energy, engineering, pharmaceuticals totaling more than 100 mln USD. Part of the investment project concerns the production of ceramic tiles. For example, a 24.3 million dollar project, realized at the expense of the association “Uzbekcharmpoyabzali” and the company XuZhan InvestmentCo, will lead to the production of 6 million square meters of ceramic tiles in the Syrdarya branch of SIZ “Jizak”.

Another example is China’s investment in the chemical industry in Uzbekistan. On the basis of JSC “Navoiazot”, it is planned to implement a project on construction of a Poly-Vinyl Chloride production plant, the basic raw material for the manufacture of PVC profiles in Uzbekistan. For this purpose, China’s Eximbank has allocated a credit line of $ 374 million to Uzbek bank “Asaka”. The total project cost is more than $ 500 million.[6]

The total volume of Chinese investment in the Uzbek economy, according to the data given in an article of the deputy director of the Center for Eurasian Studies of China Institute of International Studies Lee Tszygo, is more than 7 bln US dollars.[7]

It is noteworthy that in Uzbekistan, most of the Chinese investments are directed to the real sector of the economy, which distinguishes the republic from other countries in the region. So, for example, the Uzbek authorities are trying to use the loans given by China for the construction and launching of new types of high-tech industries.

Moreover, in the investment field, the Uzbek authorities prefer to intensively cooperate with South Korea. In terms of volumes, South Korean investment companies are ahead of Chinese investment companies. Thus, Chinese multinational companies in the Uzbek economy are deprived of an opportunity to occupy a dominant position. But lately, Chinese companies increasingly begin to occupy those niches that earlier were occupied by South Korean TNCs. This, in particular, was noted by analysts of the International Institute of Political Expertise in the report “Investment potential of Uzbekistan”.[8]

The interest of Uzbekistan in Chinese investments proves another fact. In particular, when creating the Asian Infrastructure Investment Bank (AIIB), the Uzbek authorities have chosen not to remain on the sidelines and joined the list of founders of a new international financial mechanism.

Public diplomacy

Chinese-Uzbek relations in the humanitarian fields are developing no less intensively. Cooperation of Uzbekistan and China in the field of culture is based on the “Cultural exchange programs between the Ministry of Culture and Sports of Uzbekistan and the Ministry of Culture of China in 2014-2017”. Currently there are 2 Confucius Institutes in Uzbekistan. The first institute was opened in Tashkent in 2005. The second Institute was opened at Samarkand State Institute of Foreign Languages, an agreement on which was signed during the September visit of Xi Jinping to Uzbekistan in 2013.

In addition, at the end of 2014, by order of the President of Uzbekistan Islam Karimov, a department of Sinology was opened at the Tashkent State Institute of Oriental Studies. It should also be stressed that more than 100 mln. USD of the 6 billion USD, allocated by China to Uzbekistan during the visit of Islam Karimov to Beijing in 2014, were directed to funding of schools and purchase of new school equipment.

 Mediator in security matters

Investing billions investments in the countries of the region, including in Uzbekistan, opening new industrial sites, developing deposits, Beijing naturally attaches great importance to security issues. In connection with the intensification of terrorist organizations in the world who often declare their plans to seize power, including in Central Asia, the Chinese leadership began to see cooperation in the security issues as a separate area. This explains the fact that in recent years, there has been a tendency to strengthen the Uzbek-Chinese relations in the military sphere.

According to Chinese experts, most worrying in the security situation for the Chinese policy in Uzbekistan are: the activities and plans of the IMU, the religious situation in the country, threats of members of ISIS against Tashkent and other issues. The news about the plans of militants from ISIS about penetration in the Ferghana Valley and the seizure of power did not remain unnoticed by China.[9]

At the same time, China sees Uzbekistan as a key player that can contribute to implementation of Beijing’s objectives in Afghanistan.[10] China clearly understands that the increasing role of A. Dostum (ethnic Uzbek) in the political hierarchy of Afghanistan has increased Tashkent’s influence in the domestic affairs of Afghanistan. This fact prompted the Chinese government to intensify military-technical ties with Uzbekistan. The agreements achieved in 2014 on the supplies of air defense missile systems of medium-range HQ-9 and a set of Chinese unmanned combat air vehicles Pterodactyl (Yilong-1) can be associated with that.

These topical issues of security both within Uzbekistan and outside the country’s borders are more and more often discussed at the Uzbek-Chinese talks, and not only in the framework of the SCO. In late 2014, there was a visit of the Chinese Minister of Public Security Guo Shengkun in Uzbekistan, during which the two parties deepened bilateral relations in the field of law enforcement.

Conclusions

Policy of the new leadership of China with respect to Uzbekistan is gradually changing. Uzbekistan is attractive not only as a raw material base of the Chinese economy, but also as a promising partner in the field of regional security and deployment of a wide network of transport and logistics projects.

The new role that China determines for Uzbekistan is linked to the practical implementation of China’s strategic plan to create an “economic belt of the Silk Road”. Apparently, they believe in Beijing that Uzbekistan, characterized by its “special opinion” and not linked to Russian integration commitments, is more suitable for the role of the conductor of this idea than anyone else.

In turn, the reciprocal interest of Uzbekistan in strengthening of Chinese foreign policy direction is linked with the fact that Tashkent intends to balance its external relations. As a well-known expert of the Spanish Institute for Strategic Studies Jorge Mestre-Hord noted, “Uzbekistan excludes the possibility of any “geo-patrons” that serves as a support element carried out by Tashkent policy of “balancing” between the major powers in the region”.[11]Indeed, the leadership of Uzbekistan, compared to other countries in the region, prefers to respond to the initiative proposed by China in a rather reserved manner.

Also, recently, there has been a certain distancing of Tashkent from intensive contacts within the SCO. Uzbekistan was the first to speak against the initiative of Free Trade Zone proposed by Beijing in the framework of the SCO. R. Azimov was one of the first among the countries participating in the SCO in Beijing who said that Uzbekistan was not ready to consider the proposals on elaboration of the question of creation of the SCO free trade zone.[12]

But in spite of the above, it is expected that the Chinese government will seek to strengthen its positions in Uzbekistan. In particular, unlike other countries in the region, first of all, Kazakhstan, Kyrgyzstan and Tajikistan, Chinese investors will not have to constantly “look back to Moscow” in Uzbekistan. Russia’s influence in this country is much weaker than in the other republics of Central Asia. partly due to this, the Chinese government selected Uzbek territory for strategic investments. However, at the same time, it is no exaggeration to say that the Uzbek authorities themselves treat the investment cooperation with China seriously enough.

Another thing is that a number of circumstances could significantly weaken the policy of the Uzbek authorities to obtain Chinese investment. In particular, the above strategic investments of China in Uzbekistan will gradually promote Beijing’s policy in the country.

In general, the Chinese investment in the construction of infrastructure facilities in the region has more a positive effect. After all, if vital transport arteries linking Beijing with its strategic partners in the Gulf and Europe pass through Central Asia, particularly through the territory of Uzbekistan, China itself will be interested in the stability of this region. This means that Beijing will not destabilize the situation in the region, moreover, it will allocate funds for keeping stability in the event of a regional force majeure.

On this basis, using the increase in Beijing’s interest in the project of Silk Road, countries in the region should modernize old and rebuild new modern transport arteries. In this context, the current policy of the government of Uzbekistan in terms of investment cooperation with China can be considered sufficiently effective.

[1] Ambassador of PRC in the Republic of Uzbekistan visited a construction object during the Chinese New year Celebration  (中国驻乌兹别克斯坦使馆春节走访中企在乌承建项目) http://news.xinhuanet.com/world/2016-02/14/c_128717213.htm

[2] http://zamondosh.blogspot.nl/ (16.02.2016)

[3] Hitoi Uzbekistan Orkali utadigan tezurar temir yulini kuradi http://www.ut.uz/uz/iqtisodiyot/hitoy_ozbekiston_orqali_otadigan_tezyurar_temir_yolini_quradihttp://www.ut.uz/uz/iqtisodiyot/hitoyqirgizistonozbekiston_yonalishi_boyicha_temir_yol_qurilishi_2016_yilda_boshlanadi

* We intentionally use the data for 2014, as in 2015, the trade turnover significantly fell due to the problems in world economy.

[4] Xinhua News Agency, “The external debt of Uzbekistan has reached 16% of GDP” http://russian.people.com.cn/n/2015/0625/c31519-8910995.html (20.02.2016)

[5] Uzbekistan and China discussed cooperation in the field of energy http://www.warandpeace.ru/ru/news/view/92985/ (20.02.2016)

[6] PVC production in Uzbekistan will start on the Chinese money http://www.oknamedia.ru/spage-publish/section-news/detail-42931.html

[7] China and Uzbekistan: the joint development in the geopolitical “crisis” (中国与乌兹别克斯坦:地缘“危机”之下共同发展) //http://money.163.com/15/0831/10/B2BDAN6C00253B0H.html (25.02.2016)

[8] The report “Investment potential of Uzbekistan” http://www.minchenko.ru/netcat_files/File/Uzbekistan%20issledovanie%2015_07_full.pdf (23.02.2016)

[9] Terrorists of “Islamic State” tried to enter the territory of the country – the Uzbek authorities (乌兹别克斯坦情报部门:伊斯兰国脱逃武装分子试图进入该)http://sputniknews.cn/society/20151030/1016826170.html (25.02.2016)

[10] China and Uzbekistan: the joint development in the geopolitical “crisis” (中国与乌兹别克斯坦:地缘“危机”之下共同发展) //http://money.163.com/15/0831/10/B2BDAN6C00253B0H.html (25.02.2016)

[11] Uzbekistan as a key country in the Asian geopolitical arena http://telegraf.uz/vlasty/uzbekistan-kak-klyuchevaya-strana-na-aziatskoy-geopoliticheskoy-arene

[12] Rustam Azimov: “Uzbekistan is not ready to consider the proposal to establish a free trade zone within the SCO” http://www.ut.uz/ru/analitika/rustam_azimov_uzbekistan_ne_gotov_k_rassmotreniyu_predlojeniya_o_sozdanii_zoni_svobodnoy_torgovli_v_ramkah_shos

 

The views of the author may not necessarily be those of Cabar.asia

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