Weighing the Risk: new trends in Central Asian trade 

Since the outbreak of the war in Ukraine, the Central Asian states have been seeking to forge new economic partnerships, given the heightened volatility that now accompanies their relationship with Russia. Historically these states have been the country’s strongest allies due to their shared Soviet past and membership in joint organizations, such as the Eurasian Economic Union (EEU). However, suffering from the knock-on effects of sanctions from the United States and Europe and the surge in returning migrant laborers, they are looking for more stable partners to invest in their countries’ future. Unfortunately, expanding their relationships with other global powers might bring in more potential risks than expected.

The current instability in the region could give China the opportunity to outpace Russia’s influence after years of attempting to strengthen its foothold. Since the announcement of the Belt and Road Initiative in 2013, China has invested billions to help develop infrastructure in the region and create a stronger business enabling environment. Notable accomplishments have included the development of the dry port of Khorgos on the Kazakh-Chinese border – the largest wind power project in Central Asia – and laying hundreds of kilometers on new roads throughout the region. However, increased Chinese investment in the region has been accompanied by mounting debt to the country.

Tajikistan has already begun to understand the danger of becoming indebted to Chinese banks. At the beginning of 2022, almost 60% of the national debt was to Chinese banks equalling nearly 2 billion dollars. This number could possibly be even higher considering the lack of transparency around many Chinese deals in the country. Despite the grandiose claims of the massive wealth that these investments are to bring to the country, none of them have come to fruition, leaving no clear path to repayment of these loans. Tajikistan even had to apply for a deferral of its loan in 2020 to Eximbank of China, among other banks, due to the economic crisis that accompanied the COVID-19 pandemic. Despite the growing desperation of the situation in Tajikistan, other countries in the region have not been deterred from making their own deals with China.

Recently Chinese Foreign Minister Wang Yi took a tour of the region, arranging high-level meetings with Central Asian leaders, including President of Kyrgyzstan Sadyr Japarov and President of Uzbekistan Shavkat Mirziyoyev. During the trip, Yi was warmly welcomed by Japarov, who views China as one of its most promising economic partners. Much like Tajikistan, his country has racked up a tremendous debt totaling over 2.14 billion and is still growing precipitously. Japarov, however, has not attempted to hide the danger associated with their debt to China. He has recently remarked that “I’m not scaremongering, but if we do not pay this debt, [China’s] Export-Import Bank can take over [projects]. This has already been [discussed] in cases in Pakistan, Sri Lanka, and other countries”. 

These remarks have left many wondering why they would continue to voluntarily enter these deals knowing the risks involved. Part of the answer may lie in the lack of interest in the region by other international investors. For example, from 2011 up until this year there was a Cotton Campaign boycott by over 300 international companies against Uzbekistan in response to the country’s use of child and forced labor. There is also a lack of transparency in the dealings of Central Asian countries and widespread corruption. In turn, many investors view investments in the region as too risky to pursue in-kind, both from a financial and political standpoint. China, on the other hand, has been more than willing to invest and even recently made plans to enter a deal with Uzbekistan to build a railroad linking the two countries via Kyrgyzstan. However, this is not the only factor impeding Central Asian states from exploring relationships with other countries, especially those in the West. 

Despite wanting to find other investors, many Central Asian states still want to preserve their relationship with Russia. Kazakhstan and Kyrgyzstan are extremely enmeshed with Russia as they are both members of the EEU, which facilitates free movement of goods and services between member states. Uzbekistan, Tajikistan, and Kyrgyzstan have also been slightly dependent on remittances from migrant workers in Russia that account for a significant portion of their GDP. While it is important for the Central Asian states to minimize their dependence on Russia, they can not afford to completely cut themselves off from the country. Kazakhstan, whose President has been the most vocal in opposing the war in Ukraine, has already gotten a taste of what souring relations with Russia could mean after they temporarily suspended oil flow through the Capsian pipeline. However, this balancing act is not new to the region and has been integral to its economic policies since the fall of the Soviet Union.

While maintaining this balance is difficult, Central Asia has made some headway in attracting new foreign investors. Kazakhstan recently announced that 43 companies are planning to relocate to the country after closing their offices in Russia. Among these enterprises is Honeywell, one of the world’s largest conglomerates. Uzbekistan has also recently begun holding talks with Georgian officials about the possibility of using Georgian ports to access new markets in Europe. However, one of the most surprising developments in the region has been Turkmenistan’s application to join the World Trade Organization. These developments all reflect new positive trends for Central Asian trade, though there is still a long way to go before these countries are able to.