First published by Foreign Policy on May 6, 2013

After years as Eurasia’s energy bully, Russia’s state-controlled natural gas monopoly, Gazprom, is getting a taste of its own medicine. Even as Gazprom seeks to build the tallest skyscraper in Europe as its new headquarters in St. Petersburg, pressure from Russia’s neighbors led to a 15 percent decline in the company’s profits last year, eating into the state budget. Moscow’s single-minded focus on gas exports in an effort to become, in the words of President Vladimir Putin, an “energy superpower” has crippled its ability to adapt to profound changes in the global energy landscape — from the shale gas revolution in North America to the dynamism of new market players such as Azerbaijan. Having spent the last decade making enemies in Central Europe and Central Asia, Gazprom and Russian decision-makers are now reaping what they have sown.

Policymakers in European capitals could be forgiven for a little schadenfreude right now. Building on the legacy of Soviet gas exports to the Eastern Bloc and parts of Western Europe, Putin and his cohorts in the Kremlin have, for years, used Gazprom as a cudgel in Moscow’s relations with European Union member states. Over the past decade, well over a third of EU gas imports have come from Russia, with a number of Eastern European states almost completely dependent on Gazprom. Bulgaria, for example, receives more than 95 percent of the natural gas it consumes from the company. Millions of European consumers shivered through the winters of 2006, 2008, and 2009 when Gazprom cut off supplies in order to squeeze middlemen in Ukraine, Belarus, Georgia, and Moldova who had had the temerity to buck Moscow’s policies.

On the supply end of the network, Gazprom routinely bought cheap natural gas from producers in the Caspian region and sold it for as much as four times the price in Central Europe. To maintain the racket, Gazprom CEO Alexey Miller and Putin himself actively traveled across Eurasia threatening and cajoling European and post-Soviet leaders to quash alternative pipeline networks put forth by Western companies. Russia continues to pursue a “divide and conquer” strategy with respect to Europe that purposely undermines EU-wide energy directives, such as the Third Energy Package, intended to bring more competition to the market. Meanwhile, Gazprom seeks to isolate entire countries in “energy islands” where consumers are unable to receive gas from sources other than Russia, even during cutoffs.

But in just the last two years, the tide has started to turn. Low energy prices across the globe are allowing consumers to use Russia’s “reverse dependence” on European markets against Gazprom. Russia’s export options outside Europe are increasingly limited, allowing European consumer to demand better terms. Meanwhile, Central Asia is no longer Moscow’s vassal, but has finally emerged as competition for cheap energy, with producers such as Turkmenistan, Uzbekistan, and Kazakhstan not only willing to give consumers (still largely in East and South Asia) a better deal, but without treating them as former colonies to be manipulated.

Gazprom’s once-intimidated customers are growing increasingly bold. Last year, seemingly hapless Bulgaria was able to negotiate a 20 percent decrease in the price that it will pay Gazprom for the next 10 years. While it was still a long-term, so-called take-or-pay contract — meaning that Bulgaria agrees to pay for a fixed amount of gas for a certain amount of time, regardless of how much gas its consumers actually require — Sofia was able to add in a renegotiation clause, should circumstances change drastically. This would have been unthinkable in previous years.

The unexpected changes in energy markets have allowed the Bulgarians and others to play hardball with Gazprom. A glut of gas globally, due mainly to unprecedented shale gas production in North America, has driven prices down and freed up volumes around the world to be shipped as liquefied natural gas (LNG) to Europe. The United States is set to export LNG, though that will mostly go to East Asia instead of Europe. In addition, because natural gas has recently replaced coal as a fuel source throughout much of North America, EU member states, many of whom already have well-developed coal-burning infrastructure, are reaping the benefits of excess coal, which allows them to be more flexible when it comes to natural gas dependence. Thanks to this combination of factors, Gazprom has or is in the process of negotiating new contract terms with all its European customers, including the major markets of Germany and Italy.

Meanwhile, the long-stalled efforts to connect European consumers directly to Caspian producers are finally paying off. Building on the experience of the U.S.-backed Baku-Tbilisi-Ceyhan pipeline, which since 2005 has brought oil from Azerbaijan, Kazakhstan, and Turkmenistan to the Mediterranean (avoiding Soviet-era pipeline networks through Russia), SOCAR, Azerbaijan’s state energy company, is now building a natural gas pipeline network through the Caucasus and Turkey to the borders of the European Union. This network’s flagship project, the Trans-Anatolian Natural Gas Pipeline (TANAP), makes SOCAR the largest foreign investor in Turkey and the arbiter of whether the gas will go from there to Austria’s gas hub at Baumgarten through the Nabucco West pipeline or to the western Balkans and Italy through the Trans Adriatic Pipeline. Baku’s new clout and direct negotiations with these countries mean that it is eating into traditional Gazprom territory, providing leverage for European decision-makers who in the past had no choice but to kowtow to Moscow.

Further east, Turkmenistan, long a natural gas appendage to Gazprom’s network and the source of much of the gas sold in Ukraine, has in the past few years emerged as a player in its own right. With the world’s fourth-largest gas reserves, it was inevitable that Turkmenistan would eventually demand the right to determine its own destiny. But Gazprom’s executives were slow to read the writing on the wall when the isolated country’s government started wide-ranging negotiations with Chinese energy giant CNPC to anchor a vast pipeline network through Central Asia. The pipeline project will not only bring gas to Chinese consumers but also distribute it throughout the region, undermining Gazprom’s previous monopoly in energy-poor states like Kyrgyzstan and Tajikistan. The main artery of CNPC’s pipeline network was completed in record time and is now being expanded to include all five post-Soviet Central Asian states, as well as Afghanistan. According to one industry source with whom I spoke, Russian officials were caught flat-footed when their Chinese counterparts told them last year in no uncertain terms that Turkmenistan’s energy sector is no longer their turf.

Gazprom’s response to these setbacks has long been to tout its potential export gas eastward to China and the strong economies of the Asia-Pacific, but it has not invested in the pipeline infrastructure required for this geographical shift. Although it made record profits in the previous decade’s boom times, very little of those funds were reinvested, whether to repair the company’s ailing infrastructure or to realize new export options. Meanwhile, CNPC built its network to Central Asian producers just south of Russia, with plans for connections to Iran and the Persian Gulf states. After years of difficult negotiations, Gazpromfinally signed a preliminary export agreement with CNPC in March, but the nature of the deal revealed Gazprom’s faltering clout. Neither a timeline nor volumes have been agreed upon. And where Russia once swaggered into meetings with European energy consumers, Moscow had to send several delegations to Beijing to offer very favorable prices in order for the Chinese to sign on the dotted line.

All this should be embarrassing for Putin and his close advisors — many of them on Gazprom’s board — back in Moscow. Instead, however, Miller and Gazprom’s leadership have spent millions of dollars on public relations campaigns maligning shale gas as bad for the environment and arguing that Gazprom’s old-fashioned, long-term contracts provide stability in an era of market flux. This head-in-the-sand mentality could have domestic political consequences. Gazprom makes up 10 percent of Russian export revenues, so losses leave Putin with fewer resources to spread throughout his patronage network. Russia’s resurgence as a great power after the shame and poverty of the tumultuous 1990s is a major pillar of Putin’s popularity. But much of that rebound was based on turning Russia into a petrostate, dependent on Gazprom’s profits. As the company falters, the state may not be far behind.

If Gazprom is going to continue serving as Putin’s primary pawn in the great game of energy geopolitics, it will have to adapt. Acting like a real energy company would be a start. The Peterson Institute for International Economics recently estimated that Gazprom loses up to $40 billion annually due to corruption and waste. It could begin to offer spot-indexed pricing, as opposed to inefficient long-term take-or-pay contracts. It could begin to invest seriously in new technologies, such as fracking and LNG, that have boosted its global competitors. In short, it could begin to respond to the market, as opposed to trying to force its hand.

The Kremlin will almost certainly continue to use Gazprom as a foreign-policy tool — it has few other options — but going forward, the bloated behemoth will deliver diminishing returns in geopolitics, as well as business.

First published by Foreign Policy’s AfPak Channel on April 18, 2013

As we near the date of withdrawal for U.S. combat forces in Afghanistan, the debate about the country’s largest neighbor has shifted.  No longer are American analysts worried about Chinese investments free-riding on U.S. and NATO stability efforts.  Now, the hope is that China’s massive state-owned enterprises (SOEs) will pour more funds into Afghanistan in the hope that foreign direct investment will shore up a centralized government and provide opportunities for all to make money instead of war.  But, Chinese companies face many of the same uncertainties that U.S. forces and contractors have contended with for a decade.

Much has been written about the controversies and delays at the site of China’s largest investment in the country: the gargantuan copper mine at Mes Aynak.  Both company officials and local observers indicate that the SOE leading the project, China Metallurgical Group Corporation, is biding its time, waiting to assess the post-withdrawal security situation.

What could be far more significant in the long run, however, are Chinese plans for oil and gas investment in the north of the country.  These have the potential to link Afghanistan into China’s growing pipeline network in Central Asia, providing the infrastructure-led regional integrationthat U.S. officials have been touting for years.  Nearby Turkmenistan and Kazakhstan have grown wealthy and centralized partly due to Chinese energy investment.  Could the same be true for Afghanistan in the future?

First, the oil has to come out of the ground.  Afghan Minister of Mines Wahidullah Shahraniannounced at last month’s Mines and Money conference in Hong Kong that Beijing’s flagship China National Petroleum Corporation (CNPC) will very soon start oil production at its three concessions in northern Sar-e-Pul province.  But, back in October, Shahrani announced the very same news.  On the ground observers, independent consultants and this Reuters articleconfirmed that extraction actually began in the Fall and was ramped up in January.  Perhaps this is just a question of wording.  There could also be some confusion amongst journalists about what constitutes “extraction” and “commercial production”.

However, there seems to be lack of clarity on exactly how much crude is coming out of the ground, where it will be refined and what sort of reserves CNPC is sitting on.  Back in October Shahrani mentioned a production rate of 1950 barrels per day (bpd), whereas his latest comments indicate initial output of 5000 bpd, with plans for 25,000 bpd by the end of the year.  This is a significant discrepancy.  Last year, CNPC officials were discussing estimates closer to 2000 bpd, a figure corroborated by representatives of Watan Oil and Gas, CNPC’s Afghan partner in the project.

It also seems that there is now some uncertainty about which of Afghanistan’s northern neighbors will refine the oil, which according to CNPC and the Ministry is to be re-imported in the form of various petroleum products, such as gasoline and kerosene, for Afghan consumption.  That said, CNPC has confirmed on numerous occasions that the crude is already being trucked in convoys across the border with Turkmenistan to be refined there.  As Erica Downs mentions in her excellent, in-depth report on China’s investments in Afghanistan, CNPC’s oil extraction project in Sar-e-Pul is an extension of its mammoth operations in eastern Turkmenistan, from where the Central Asia-China natural gas pipeline extends all the way to Beijing, Shanghai and China’s other east coast urban centers.

The three concessions that CNPC received in Afghanistan: the Kashkari, Bazarkhami and Zamarudsa oil blocks are part of the vast Amu Darya basin, the oil and natural gas reserves of which are thought to stretch from southeastern Turkmenistan to southern Tajikistan and across northern Afghanistan.  In fact, this is the very same territory through which CNPC is planning to build a new natural gas pipeline to bring Turkmen resources to Xinjiang through northern Afghanistan and Tajikistan.  The TATC project, as it has been labeled, would serve as an alternative route to the Central Asia-China pipeline, so that Chinese consumers are not dependent on Uzbekistan and Kazakhstan as transit countries.  Given CNPC’s plans for a massive 65 billion cubic meters of gas annually to be imported from Turkmenistan, there will almost certainly be a need for another line.

In the past, CNPC has discussed the possibility of pipelines from Iran or other parts of the Gulf connecting to its Central Asian network, potentially through northern Afghanistan.  CNPC recently abandoned its plans to develop part of Iran’s gigantic South Pars gas field, but it is actively looking for new extractive opportunities in the country, despite international sanctions.  If it already has infrastructure threaded through northern Afghanistan, it would be logical for CNPC to use the same provinces in which it is extracting oil as a thoroughfare for Gulf gas going to China.

In the face of these wide-ranging plans, Afghanistan’s Ministry of Mines may be trying to keep its options open. Philadelphia-based chemical company FMC Corporation announced an agreement in late December to build a refinery in Jowzjan province, not far from CNPC’s operations.  FMC’s plans call for processing oil extracted not only by CNPC, but also that expected to be produced in another section of the Amu Darya basin by a consortium made up of Dubai-based Dragon Oil, Kuwait Energy and Turkish Petroleum.  Their blocks, Sanduqli and Mazer-e-Sharif, were only awarded in December and consortium representatives say that negotiations with the Ministry are ongoing.  Afghan press reports claim a three year deal has been signed between CNPC and FMC, but no CNPC representatives were able to confirm that.  So far, plans call for refining 60 bpd, so either way, CNPC will almost certainly continue to use its Turkmen connection to bring the crude to market.

The Afghan government consistently casts China’s energy development plans as part of the post-withdrawal economic development strategy, and even the U.S. embassy in Kabul has partneredwith the Chinese on low-key capacity-building projects.  In the specific Afghan context, this may very well be the case, but when one zooms out to see that CNPC’s operations in Afghanistan are just one piece of an immense energy network being developed by Chinese firms across Eurasia, it becomes clear that China’s energy plans for Afghanistan ought to be monitored much more closely in the years to come.  If the Central Asian experience provides any lessons, Chinese energy investment might provide medium-term prosperity at the expense of long-term sovereignty.

Dr. Alexandros Petersen is author of The World Island: Eurasian Geopolitics and the Fate of the West, and Advisor to the European Energy Security Initiative at the Woodrow Wilson International Center for Scholars. His current research is available at www.chinaincentralasia.com.

The Gadfly: You have referred to China’s growing influence in Central Asia as an “Inadvertent Empire.”  Could you explain what you mean?

Alexandros Petersen: It’s an inadvertent empire in the sense that China is already the most consequential actor in the region and will soon be the dominant actor in a number of different areas.  It already is the dominant actor in the economic sphere and definitely so in the energy sector, which is actually quite a significant accomplishment given Russia’s traditional role in that area.  China has also become the go to place for loans and investments.  One of the key needs in Central Asia is investment in infrastructure, and that requires funds.  Russia doesn’t have the money; the United States doesn’t have the money in some cases and simply doesn’t care in others; the European Union is not comfortable giving money because of the nature of some of the regimes in the region, so China is really the only option to provide funding as well as institutional capacity building.  So, it’s an empire in the sense that China is the player to watch and will be the dominate player in the future, but it’s inadvertent, in the sense that China doesn’t really have a strategy for the region.  China doesn’t want an empire.  As Seeley would say, it has an empire “in a fit of absence of mind.”

What China does have is a strategy for its piece of Central Asia: the Xinjiang Uyghur Autonomous Region.  I’m referring to the “Develop the West” policy, which started working overtime in 2009 after the ethnic riots in Xinjiang.  The riots were a blow not just to the economy of Xinjiang, but also the legitimacy of the Chinese Communist Party.  China’s reaction, in the form of the “Develop the West” strategy, was to bring economic investment to Xinjiang in the hope that investment will lead to economic prosperity and therefore stability.  China’s strategy in Central Asia is mainly a domestic strategy, but there is a spillover effect.  There’s a sense that the states around Xinjiang (particularly Kazakhstan, Kyrgyzstan and Tajikistan) should be factored into the strategy, if only as a cordon of somewhat prosperous and secure states around Xinjiang.  What China doesn’t want is for Uyghur separatists or terrorists to have bases across the border.  So, China knows vaguely what it wants from Central Asia, but it does not have an actual strategy.

“China knows vaguely what it wants from Central Asia, but it does not have an actual strategy.”

The Gadfly: What about the quote by the People’s Liberation Army General Liu Yazhou you mention in your article, referring to Central Asia as “the thickest piece of cake given to the modern Chinese by the heavens.”  Does that suggest some people in China do see gaining a foothold in Central Asia as a goal in and of itself?

Alexandros Petersen: Two things: first, of the various state institutions, only the PLA has a sense of Central Asia’s importance.  You might think the Ministry of Foreign Affairs would be interested, but it has no one really working on this area, there isn’t even a Kazakhstan desk in the ministry.  There are people working on Central Asia in other contexts, but no one actually focuses on Central Asia.  At the Politburo, they only see Central Asia as a neighbor to Xinjiang.  You see this reflexed in the sorts of diplomats that are sent to the region; they are usually not the top level Beijing has to offer.  The PLA, however, given its large role historically in Xinjiang, is aware of the strategic importance of Eurasian geopolitics—they are aware of Mackinder’s theories concerning Central Asia as the heart of the Eurasia and the importance of the area to the United States over the past ten years.  That said, the PLA has not devoted many resources towards dealing with Central Asia.  They may well do so in the future, but not yet.

Second, General Liu referred to Central Asia as “a slice of cake.”  The reason he put it that way is because of the obvious benefits China could gain by tapping into Central Asia’s natural resources.  If you look at the grand scheme of things—for instance, where China gets its oil and gas—Central Asia only provides a tiny sliver of China’s resources globally; however, Central Asia is still important given China’s rapacious appetite for natural resources and its geographic location.

A lot of China’s expansion in the region is driven by forces outside the Chinese government.  Given Central Asia’s abundant natural resources, its close proximity to China, and fading Russian capacity, China’s state-owned enterprises see Central Asia as a great opportunity for expansion.  Chinese companies feel they have an advantage over other external players in the region, and they would like to build on that.

“…of the various state institutions, only the People’s Liberation Army has a sense of Central Asia’s importance.”

The Gadfly: Why would Chinese companies have an advantage in the region?

Alexandros Petersen: They do have an advantage in that they are often able to make upfront investments of large sums.  They are also willing to deal with business practices and corruption when other companies are not.  And when Chinese investments come into Central Asia, they arrive with no strings attached: no talk about good governance, no lectures on corruption, etc.  Those are objective facts.  What the Chinese also claim is that they understand Central Asian culture.  That, I think, may be more their perception than reality.  But back to the first point, although there are no strings attached at the moment, there may be demands in the future: not tied to good governance, but favors that have to be repaid by Central Asian governments in political and security terms.  That’s when China’s empire becomes less inadvertent.

The Gadfly:  Do we see any signs of that happening now?  Is China starting to formulate a policy for the region, or make demands in return for its investments?

Alexandros Petersen: Maybe on a very limited basis, but I wouldn’t say we’ve seen that change yet.  I would be surprised if we don’t see it happen in the near future.  Probably after 2014 when the United States pulls out of Afghanistan.  When they do decide to make that move, they will be able to build off of their current position and structures like the Shanghai Cooperation Organization (SCO).

The Gadfly:  What are the perceptions locally of China’s involvement in Central Asia?  Is China a welcome presence, or are there some reservations among the local elite?

Alexandros Petersen: There are differences between the five post-Soviet countries and Afghanistan, and there are differences between various factions within those countries. Kazakhstan has tried to strike a balance between Western, Russian and Chinese investments and political influence, but it seems the trend is towards more Chinese influence.  In the long run, I think they will end up leaning more towards China.  In Uzbekistan, they have been far more wary of Chinese influence—it is there, but they are more careful.  The future of China in Uzbekistan is unpredictable.  Kyrgyzstan is already overwhelmed by Chinese investment, and they have very little choice other than to look towards more Chinese involvement.  Tajikistan is headed in the same direction.  Turkmenistan is the really interesting case.  If you look on paper, it appears Turkmenistan is very reliant on China.  Most of its natural gas goes to China—the Turkmenistan-China pipeline is its major lifeline.  At the same time, because Turkmenistan is such a closed place, because it is so heavily managed at the top, and because they are making clear concerted efforts to diversify their links, Turkmenistan may in the long run find it has more options than its neighbors.  Afghanistan is desperate for money from anywhere.  The US embassy in Kabul has resigned itself to working with the Chinese and has already done so on a number of different projects.  Compare that to the recent past, when the narrative in the United States was that China was free riding on our security efforts, now the United States would just be happy if it could leave Afghanistan with some economic stability.

“When Chinese investments come into Central Asia, they arrive with no strings attached: no talk about good governance, no lectures on corruption, etc.”

The Gadfly: What are the major challenges from internal and external players China faces in Central Asia?

Alexandros Petersen: First, let’s talk about external actors.  The primary purpose of the SCO was to reassure Russia that China had no interest in undermining Russia’s influence in the region.  If China could find a way to move into the region without jeopardizing Russia’s role as the dominant power, it would.  So, the SCO sends a signal that although China is moving into the region, it still respects Russia’s sphere of influence.  China can take advantage of the current system, because it leaves Russia to address security issues.  And the West is not a significant challenge to Chinese presence.  China only has to worry about competing with Western companies, and they are used to doing that in other parts of the world.

The main concern China has in the region is internal stability.  What will happen when the current leaders are no longer around?  They are less worried about terrorism from Afghanistan and more worried about what happens if the Fergana valley explodes during a sloppy handoff of power.

The Gadfly: Is there a danger of local backlash against Chinese presence?  How do non-elites in Central Asia see China?

Alexandros Petersen: We have to take into account the fact that during the Soviet Era, the Chinese were seen as a great “other,” and many Central Asians see Chinese as invading outsiders.  Central Asians also sympathize to some extent with the Uyghur population in China, and that adds a little more tension to the relationship.  That is something that will be hard for China to overcome.

China is aware of the problem, but it is not addressing the issue in a concerted way.  There are things that Chinese companies are doing—think of it as Corporate Social Responsibility with Chinese Characteristics—to reach out to communities, and they are doing much more than even three years ago.  They have realized they need to be more involved in the communities, in which they are investing and at least pay lip service to environmental and labor issues.

“I would say Political Islam is more capable than either Russia or the West of affecting China’s future influence in the region.”

The Gadfly:  Has there been an effort by the Chinese government to bolster its image in the region?

Alexandros Petersen: China has done some of that, what with building Confucian Institutes and so on, but we should be careful not to overestimate their effectiveness.  I do think, however, that Chinese as a language is gaining influence.  Increasingly, English is the second language of the elite, but the middle class is interested in Chinese, because it provides the best opportunity for making money.  English is not as useful if you don’t have the money to pay for an education in the West and make connections there.

The Gadfly:  What trends should we be watching in order to get an idea where China’s relations with Central Asia are headed?

Alexandros Petersen: One of the most important things to watch is the transfer of power.  We now have 20 years of post-soviet governance.  The next generation of leaders is not going to look like the current one.  That could have broad implications for China.  A nationalist leader in Kazakhstan, for instance, might play off sinophobic sentiment to consolidate power.  On the other hand, a leader that wants to move away from Russia might be more open to Chinese involvement.

We should also watch Political Islam in the region.  Political Islam will almost certainly be anti-Chinese.  In the future, we may see secular, China-oriented political factions competing for power with Gulf-oriented, Islamist political factions.  The AKP in Turkey took power by appealing to religious small businessmen in Anatolia.  I could see a similar situation emerge in Central Asia.  I would say Political Islam is more capable than either Russia or the West of affecting China’s future influence in the region.

First published by the Carnegie Endowment for International Peace and The Diplomat on April 2, 2013

The 2014 deadline for the withdrawal of troops from Afghanistan is fast approaching. China has just over a year before Afghanistan fades from the West’s radar and Western attention toward the country shrinks substantially. However, it is not clear that Beijing has properly considered what it is going to do once NATO forces leave and pass the responsibility for Afghan stability and security to local forces.

And more crucially, it is not clear that China has thought about what it can do with the significant economic leverage it wields in the region. Afghanistan offers China the opportunity to show the world it is a responsible global leader that is not wholly reliant on others to assure its regional interests.

Traditionally, Chinese thinkers have considered Afghanistan the “graveyard of empires.” They chuckle at the ill-advised American-led NATO effort and point to British and Soviet experiences fighting wars in Afghanistan.

But in reality, the presence of NATO forces provided China with a sense of stability. Beijing correctly assumed that NATO’s presence in Afghanistan would mean regional terrorist networks would remain focused on attacking Alliance forces rather than stirring up trouble in neighboring countries like China. NATO’s targeting of Islamist groups also had the effect of striking anti-Chinese Uighur groups that had sought refuge in Afghanistan under the protection of the Taliban or al-Qaeda. These Uighur groups would otherwise have focused their attention on targeting China.

Yet as the date of American withdrawal from Afghanistan approaches, this security dynamic is changing. While China does worry about the threat of Islamist Uighur groups striking from their Afghan bases, this concern is relatively marginal. The bigger problem is the potentially negative repercussions for the rising number of investments from China’s private sector in Afghanistan and its surrounding region. These investments are part of a broader push into Central Asia that flows from an effort to develop China’s historically underdeveloped province of Xinjiang, which borders Afghanistan.

The prospect of an Afghanistan returning to chaos is, therefore, not appealing to policymakers and businesspeople in Beijing. This scenario would bring instability directly to China’s doorstep, and this instability could potentially expand northward into Central Asia or southward into Pakistan. China would suffer from further chaos in either direction.

The solution to this problem is complex. China is not necessarily expected to invest heavily in security efforts and rebuilding Afghanistan’s security apparatus, though some more substantial contribution in this direction than the offer to train a nominal 300 policemen that China made last year in Kabul would be helpful. Rather, China could focus on what it is able to do best: invest in Afghanistan and develop its abundant natural resources.

Chinese state-owned firms have already invested in oil fields in Amu Darya in northern Afghanistan and a copper mine in Mes Aynak, southeast of Kabul. These investments have had mixed success.

Amu Darya has produced for the China National Petroleum Company (CNPC), though its current status is unknown. Problems and uncertainty with China’s investments in Central Asia are reflected in the difficulties of two other Chinese companies—the Metallurgical Corporation of China (MCC) and Jiangxi Copper—in the south.

In part this is because companies operating in the south face understandable security concerns that range from locals angry because they feel they were not justly compensated for their land that was affected by the mine to Taliban-affiliated groups eager to punish the central government by undermining efforts to develop the country.

But these companies also often find they lack a full understanding of the environment in which they are trying to invest. Orchestrators of projects that begin with the best of intentions and large investments, like the Mes Aynak mine, find themselves burdened with a local government response that is confused. Confusion turns to anger when these projects fail to deliver elements that were supposedly included in the original contract. For example, the local Afghan government initially believed that MCC and Jiangxi Copper would build a train line in the south. But the companies claim the contract only stipulated it would conduct a feasibility study. They also claim that the security situation has driven Chinese workers to refuse to work on the site, though reports about whether these stoppages are actually occurring are unclear.

The difficulty of this deal contrasts with the rapidity with which Chinese energy giant CNPC was able to bring online the oil field in Amu Darya. Political complications with the local Afghan strongman Rashid Dostum have held up work, and it is not clear that they have been completely resolved. The field has produced some oil that was transported across the border by truck into Turkmenistan, where it is refined at a separate CNPC site. The company has also said that it is going to develop a refinery in Afghanistan to help facilitate Afghan energy independence.

These two projects show the potential benefits and downsides to investing in Afghanistan. Large mining projects like these have the potential to be help rebuild parts of Afghanistan and transform the economy from one that is reliant on the drug trade and foreign aid to self-reliance.

Even if they were all successful, Chinese investments alone would not transform Afghanistan into a stable and prosperous state. China also needs to leverage its power within the region and persuade other countries to engage in Afghanistan in order to complete this transformation. The Shanghai Cooperation Organization (SCO), a regional entity led by China, has done very little in Afghanistan due to a lack of agreement among members about what exactly actions to take. China believes the SCO should do more, but other member countries believe a bilateral approach is better that a multilateral one and that focusing on building individual relationships in Afghanistan will help strengthen their particular interests. This is unfortunate as the SCO could be a useful vehicle through which China and other regional actors could undertake efforts to counter the narcotics trade in the region and strengthen border controls.

China has growing influence in the Asian Development Bank, which has already invested heavily in Afghanistan. China could continue its support for these projects to help connect Afghanistan to the broader region and reintegrate the nation into the global community, thus fostering stability. This approach complements China’s broader regional strategy to develop Xinjiang into the “gateway for Eurasia” as Premier Wen Jiabao put it during the China-Eurasia Expo in September last year.

And at the social level, China needs to foster person-to-person contact with Afghanistan. Last year during a visit to Kabul, the most striking characteristic of Kabul University’s Confucius Institute—one of the Beijing-backed centers that promote Chinese language and culture across the world—was the absence of Chinese teachers and Afghan students. This stood in contrast to other Confucius Institutes in Central Asia with dozens of students crowding around excited teachers. The security situation undoubtedly complicates things in Kabul, but there are safer parts of the country in which to operate. To further encourage societal ties, Beijing could try to entice more Afghans to study and work in China through scholarships and study grants.

China has an opportunity in the next year to assert some leadership in helping steer Afghanistan in a more positive direction. A stable Afghanistan is in China’s national interest, and taking the lead on this regional issue of international importance could help bolster Beijing’s global position. The West may have made mistakes in Afghanistan’s past, and making up for them will undoubtedly take time. But the Afghanistan problem is one that remains on China’s borders and has the potential to result in even more regional instability. Investing in Afghanistan now will save years of trouble later.

Raffaello Pantucci is a senior research fellow at the Royal United Services Institute and the co-editor of http://www.chinaincentralasia.com.

You have conducted in-depth research into Chinese plans for a refinery at Kara Balta in Kyrgyzstan.  What exactly are these plans and on what sort of timetable are they to be carried out?

The refinery is already behind schedule, but is expected to be built by July of this year, and operating at full capacity by September. Local media reported some tough talk (http://www.vesti.kg/index.php?option=com_k2&view=item&id=17680:kitayskiy-npz-investiroval-v-ekonomiku-kyirgyizstana-poryadka-3-mlrd-somov&Itemid=79) in January between Chu Chan, the director of Zhongda, the Chinese state-owned firm that will run the refinery, and Kyrgyz Prime Minister Jantoro Saptybaldiyev. Saptybaldiyev was clearly very keen to see the refinery working as soon as possible and asked Chu why the facility still hadn’t been built. Chu referred to “misunderstandings” having led to the wrong equipment being delivered to the site. Chu also wanted the “sanitary zone”, which governs the distance residential homes can be from the refinery, reduced from 500 metres to 300 metres, which would have helped the company out in some of its compensation battles with local residents. When Saptybaldiyev rebuffed this offer, Chu reminded him that the company have already paid something like $4,000,000 in taxes and that they will have invested $250 million into the project by the time it is up and running.

When the two met again on March 30, things went more smoothly, and Zhongda have already begun using local media space to advertise jobs (http://yellowpages.akipress.org/idprofile:587433/) at the refinery – stressing a preference for locals who can speak some Chinese. There have been some bureaucratic delays – Zhongda bought their rights to build the refinery towards the tail end of the [former President] Bakiyev period when having your paperwork in order was of secondary importance to making a contribution to the ruling family’s coffers, so most of that has had to be done retroactively. The State Inspectorate for Environmental and Technical Safety (SIETS) has also highlighted (http://www.vb.kg/doc/214119_gostehinspekciia_obnaryjila_massovye_narysheniia_pri_stroitelstve_npz_v_kara_balte.html) numerous violations at the site, which has slowed construction down.

China is now also building a smaller scale refinery in Tokmak, another provincial town. Both Tokmak and Kara-Balta are stops along the Soviet era rail track which connects Kyrgyzstan to Kazakhstan, although the long term plan is to supply the factories via a pipeline built from Kazakhstan. Together the two are expected to create over 2,000 jobs, although whether 90% of those will be jobs for local Kyrgyz remains to be seen.

What will it mean for Kyrgyzstan?

A lot. Currently the country has one oil refinery, and its finished product is of fairly poor quality. Domestic consumption in Kyrgyzstan is completely dependent on Russian production, and the journey from Siberian oil refineries obviously increases the cost to end users, despite the fact it is duty free.

The Kara-Balta refinery will probably have the capacity to meet at least half of the domestic market’s needs, producing ‘Euro 4’ or ‘Euro 5’ grade petrol. That will end Gazprom’s monopoly in the country and force the Russian producer to compete with locally refined fuel.

Politically, investments of this kind can strengthen Kyrgyzstan’s hand in future relations with Moscow. Currently the local economy is characterized by an unenviable reliance on Russia both for energy security and as a source of remittances. By building facilities that provide both local jobs and local fuel, China offers a helping hand twice.

What would you say are the wider regional implications, both substantive and symbolic, of having a Chinese-built refinery in Kyrgyzstan?  

I would argue that it is further evidence of China’s willingness to take on the role of ready investor, trouble-shooter and friendly neighbour to the countries of the region. That Kyrgyzstan’s government attaches so much importance to a project that by the standards of China’s own energy needs is still small change, is indicative of Beijing’s capacity to buy friends and influence among regional governments. That the project is a direct threat to Russia’s long-term energy grip over the republic is suggestive that China will not heed anybody else’s “sphere of influence” as it does this.

How does it fit into China’s regional energy security strategy?

When I first heard about the refinery, I found it hard to believe that China would part with up to 800,000 tons of crude from its fields in Kazakhstan and assumed that it was merely using Kyrgyzstan as a cheap production hub for oil that would eventually get exported to China, providing an unstable neighbour with jobs in the process. But if the consensus that the refinery is being built mostly for domestic consumption holds true, then it demonstrates a couple of things.

Firstly, it shows that China can be a giver as well as a taker in energy terms. As the authors of this blog have pointed out, the Kyrgyz market is a small one, defined by a limited industrial base and weak demand. Perhaps due to the fact that China imports more via the Kazakhstan-China pipeline in a month than the Kara-Balta refinery will produce in a year, Beijing feels it is able to spread around some of the fruits of its exploration activities in Kazakhstan, helping some of the region’s weaker economies with their own energy security in the process.

Moreover, the refinery should be understood as part of China’s growing attempt to rationalize regional energy relationships, using its financial might to glue Central Asian states together in a way that reduces bargaining and transaction costs for Beijing.

From Kyrgyzstan’s point of view, for example, it would be much simpler to import refined oil from Kazakhstan than Russia. But the Kyrgyz market is poor, the petrol Kazakhstan’s refineries produce is not the best quality, and the pair cannot agree on a price. China’s intervention changes all this. By controlling upstream production in Kazakhstan, downstream production in Kyrgyzstan and transportation via its expanding network of regional pipelines, China will be able to forge a major energy link between the two countries in which Bishkek and Astana are only passively involved.

From this perspective it becomes clear that China has an integrative approach to regional energy security and regional geo-economics as a whole that differs fundamentally from Russia’s. For Moscow, barriers, disagreements and differences between the Central Asian states can offer useful opportunities to play divide and rule. For China they are needless headaches that run counter to its own trade and transit interests.

Might the refinery be a lightning rod for Sinophobic backlash?

This is an important question.

The investment climate in Kyrgyzstan as a whole is far from secure and large investments of strategic importance to the national economy tend to emerge as long-term objects of struggle in the competition between domestic political factions. An example of this is Kumtor, a gold mine operated by the Canadian firm Centerra Gold, which accounts for around a tenth of GDP yet paradoxically remains a source of political instability (http://www.eurasianet.org/node/66026) in the country. Eric McGlinchey has argued (http://www.eurasianet.org/node/64974) that this can also be applied to the country’s American military base, which opposition figures have tended to view as a source of rents for the ruling elite in the past.

But as a Chinese investment, the refinery will face the additional problem of Sinophobia, a phenomenon well described (http://www.isn.ethz.ch/isn/Digital-Library/Publications/Detail/?ots591=0c54e3b3-1e9c-be1e-2c24-a6a8c7060233&lng=en&id=131977) by Sebastien Peyrouse and Marlene Laurelle. Currently the facility has witnessed regular protests based on environmental fears and labour unrest, but once it begins work opposition politicians are likely to tie these issues in with the broader threat to national sovereignty that many people feel Chinese economic expansion poses (http://www.eurasianet.org/node/64438). Of the MPs I have spoken to, most are supportive of the refinery and recognize its strategic significance. But for any nationalist politician looking to pick a fight with the weak central government in Bishkek, the vision of a Chinese refinery that will inevitably employ a significant number of Chinese workers belching out carbon emissions and violating local labour codes is going to be far too tempting a weapon –in-waiting to ignore.

First published by The Atlantic on March 5, 2013

The International Crisis Group’s (ICG) latest report, “China’s Central Asia Problem” is a sweeping and masterful work in many ways.  As we traveled through and conducted research in eastern China, Xinjiang, post-Soviet Central Asia and Afghanistan, Raffaello and I came across ICG researchers and bounced our ideas off of ICG’s seasoned Eurasia hand Paul Quinn-Judge.  The report kindly quotes a couple of our articles that appeared here on chinaincentralasia.com.

But, does the ICG report get it right?  Yes and no.  The overall point that China is on the brink of becoming the pre-eminent external power in the region, not just in the economic sphere, is correct.  We have argued that China is already the most consequential actor in Central Asia, as well as the most forward-looking external power.  In the context of a U.S., and more broadly Western, exit from the region, the engagement of multifarious Chinese actors – from diplomats to state-owned enterprises (SOEs) to shuttle traders to manual laborers and Chinese language teachers – combines to create a momentum that has no clear counterweight.  

ICG’s researchers are also correct to pinpoint the primary driver of Chinese policy in Central Asia: domestic concerns in restive, rapidly transforming Xinjiang.  This can seem like a paradox.  But, were China to craft a foreign policy strategy for Central Asia, it would almost certainly be less influential than it is now, where its policies towards the region are a sort of spillover from highly prioritized domestic policies.  The Develop the West strategy of achieving stability through prosperity in Xinjiang may or may not achieve its goal (it may succeed in spite of it self) of emasculating Uighur separatism and the appeal of Islamist extremism in western China, but the investment it is bringing to the comparatively small economies of Central Asia has an immense knock-on effect of advancing Beijing’s clout.

The hollow nature and practical ineffectiveness of the Shanghai Cooperation Organization (SCO) can partly be explained by the fact that it is not bolstered by a major Chinese foreign policy push.  Rather, it is multilateral window dressing for the bilateral external aspects of China’s domestic Develop the West strategy.  Its main plank is to reassure Russia, as well as its four Central Asian members, that China’s activities are not threatening.  We have found significantly less evidence than the ICG researchers that China’s security arrangements in the region, including the SCO, are predicated on fears of spillover instability from Afghanistan post-2014.  Our impression has been that the Chinese are far more concerned about the potential for social or political unrest in the Ferghana Valley – a sort of Osh riots times ten scenario –  than terrorist networks spreading northward.

We differ with ICG on a major point of emphasis.  China may find that it has a number of problems to deal with in Central Asia – some of its own making, others neglected by regional governments and other outside powers.  But, what of the effect of China’s growing dominance for the peoples of the region?  Central Asia, including Afghanistan, is quickly shedding one hegemon for another.  At the same time, the region’s ability to seek alternative relationships with the United States or the European Union are diminishing.  The story of external powers in Central Asia is increasingly not about competition, but rather America and Russian acquiescence to Chinese suzerainty.

Such an outcome is detrimental to U.S. strategic interests.  This is not to say that the United States and China cannot cooperate on a number of fronts in the region.  In fact, in some key areas there is exemplary collaboration.  However, if the independent policymaking of Central Asian states is entirely undermined by China’s geoeconomic momentum, instead of ameliorating the threat of Turkic Muslim upheaval, it could spread the problems of Xinjiang to the rest of the region.  It goes without saying that Western powers would lose access to the strategically vital part of the Eurasian landmass.  On top of that, Washington and Brussels may find themselves not having to deal with future spillover effects of a violent Afghanistan, but rather a entire restive region that China has only half digested in a fit of absence of mind.

Dr. Alexandros Petersen is the author of The World Island: Eurasian Geopolitics and the Fate of the West.  His current research is available at www.chinaincentralasia.com.

First published by The Diplomat on February 15, 2013.

The European Union is in a rut. Its once-vaunted economy and “ever closer” integration is facing the tough challenges of a dogged recession and anti-EU sentiment in some of its most powerful member states. It is therefore perhaps not surprising that some EU aspirants appear lukewarm about their prospects and continued desire to join the club. For Turkey, probably the most unfairly spurned EU aspirant, it makes a lot of sense to at least explore alternatives.

After all, Turkey’s economy is booming – leaping from $614.6 billion in 2009 to $775 billion in 2011 (in current U.S. dollars) according to World Bank figures. Reflecting the country’s position at the global cross-roads, Istanbul’s Ataturk Airport international traffic more than doubled between the years 2006 and 2011. Last year alone its passenger volume increased by 20%, making it Europe’s 6th busiest airport. The country’s regional and global profile has grown since it first evinced a desire to join the EU. European leaders should only be surprised that Turkey has maintained its interest in the EU for so long.

However, even as it makes sense to decision-makers in Ankara to reconsider their relationship with the EU, it is not a strategically sound choice for Turkey to consider membership of the Shanghai Cooperation Organization (SCO) as an alternative. Already a ”dialogue partner” with the SCO, late last month, Turkish Prime Minister Recep Tayyip Erdogan announced that he had made an overture to Russian President Vladimir Putin about joining the SCO, stating “If we get into the SCO, we will say good-bye to the European Union. The Shanghai Five [former name of the SCO] is better — much more powerful.” Erdogan also noted that Turkey has more “common values” with the SCO member states.

The issue, however, is that the SCO remains a nascent organization that is still in the process of defining itself. Absorbing new members, or figuring out the protocols for new members to be formally acceded, is merely one of the many problems the SCO faces. The Organization’s security structures, including the unfortunate-acronym RATS Center [Regional Anti-Terrorism Structure], have yet to fully flesh out their purpose in advancing regional security in a very militarily tense region. Meanwhile, China continues to dominate the SCO’s economic agenda, including negotiations to establish an SCO Free Trade Area (FTA), an SCO Development Bank, and Beijing offering $10 billion in loans for member states. All of this alarms Russian strategists who see China encroaching on Moscow’s Central Asian interests. Nonetheless, all of this results in a minimal concrete presence, something we found first-hand as we travelled around Central Asia over the past year, finding little tangible evidence of the Organization’s footprint on the ground.

Further complicating matters, Turkey is not the only country that has expressed an interest in becoming a full member. In fact, Pakistani and Indian officials both said their countries were interested in becoming full-fledge members at the Prime Minister’s Summit in Bishkek last December. Iran too has expressed an interest in joining the organization, although Moscow recently said this would not be possible so long as Tehran remains under UN sanctions. All three countries currently languish as “observers,“ a status that Pakistan and India have held since 2005 and one that is considered superior to the ‘dialogue partnership’ that Turkey was only accorded last June. Still, both Pakistan and India – strategically important allies for China and Russia respectively – would undoubtedly feel put out were Turkey allowed to jump the queue.

None of this is to say that Turkey does not have a key role to play in Central Asia, the SCO’s primary area of operations. Waiting for visas in Bishkek, we found ourselves jostling with Turkish truckers getting visas to Kazakhstan, whilst in the city’s downtown, eager students at the Kyrgyz-Turkish Manas University told us how exciting it would be to visit Turkey. In neighboring Uzbekistan, our driver told us how he preferred to fly Turkish airlines and how convenient the country was linguistically. This ethnic proximity is something that China in particular has sought to cultivate – in April last year, Erdogan broke protocol when he started his Chinese trip with a stopover in Urumqi, capital of historically Turkic Uighur Xinjiang.

Eager to attract outside investment to encourage prosperity as a salve for ethnic tensions between Uighur and Han Chinese and historical underdevelopment, the Urumqi government has established a Turkish-Chinese trade park outside the city, offering Turkish investors favorable rates and support to develop businesses in the province. Turkey is clearly a significant regional player and its SCO “dialogue partner” status reflects this. But full membership is a step too far and one that seems out of whack with the Organization’s current trajectory.

Far more likely, Erdogan is hinting at a shift in orientation in frustration at the West’s relationship with his country. Europe has repeatedly proven an awkward partner and the United States has demonstrated little appetite to get overly involved in the problems that sit right on Turkey’s border. Aware of his nation’s geopolitical location at a global crossroads, Erdogan is highlighting that he has options.

Still, the reality is that joining the SCO would not heighten Turkey’s global stature or teach the West a lesson. U.S. and NATO policymakers keep an eye on the SCO, but none seriously view it as a strategic counterweight. In some respects, Western strategists have been far more eager than their Chinese counterparts about the possibility of an SCO role in stabilizing Afghanistan after Western combat forces depart in 2014. In the past year, the Organization has expressed some interest in doing more in Afghanistan, but it remains light years away from replacing NATO as a security guarantor.

As an ascendant power in Eurasia, Turkey may find it useful to keep in a toe in the SCO.  However, full membership is not in the offing.  And even if it were, Turkey’s decision-makers would quickly find that China’s multilateral cover for its bilateral engagement in Central Asia is still an empty shell.

Raffaello Pantucci is a Senior Fellow at the Royal United Services Institute (RUSI).  Dr. Alexandros Petersen is the author of The World Island: Eurasian Geopolitics and the Fate of the West and an Associate Professor at the American University of Central Asia.  Their joint research is available at www.chinaincentralasia.com.

First published in Open Democracy Russia January 24, 2013

The way Central Asian states will turn — to Russia’s Eurasian Union or to China — is the test for influence in the region. Photo: (cc) Wikimedia/IvaNdimitry

If one turns enough of a blind eye, it is easy to be optimistic about Central Asia. Wily diplomats from Kyrgyzstan and Tajikistan are masterfully playing off the great powers. Kazakhstan and Turkmenistan are turning into hubs in their own right – and nobody can tell plucky Uzbekistan what to do. This is nobody’s backyard, and attempts by neo-imperialists in Moscow, Washington and Beijing to play games in the region are only strengthening the hands of the Central Asian states themselves. This is a comforting picture – which is why Western policymakers love it – but it looks increasingly false as President Putin tightens the screws.

Why a Eurasian Union matters

Russia’s desire to strengthen its sphere of influence in Central Asia seems to be intensifying. The first sign came in October 2011 when Russia’s ‘national leader’ published his vision for a Eurasian Union in the Gazprom-Media owned daily Izvestia. Here Putin stated that the Customs Union with Belarus and Kazakhstan that would come into force on 1st January 2012 was just the beginning – and that it would expand ‘by involving Kyrgyzstan and Tajikistan. Then, we plan to go beyond that, and set ourselves the ambitious goal of a higher level of integration – a Eurasian Union.’

The Russian president is said to dream of his third term being his ‘geopolitical presidency,’ where he will make up for the lost ground and lack of achievement in foreign affairs that he views as his main failing. The transformation of the fledgling Customs Union into the Eurasian Union of his dreams is the centrepiece of this strategy. Whilst Kazakhstan seems to have already decided that it wants to be a part of the Union (and its president, Nursultan Nazarbayev is credited for first raising the idea of a Customs Union back in 1995), for the Central Asian states of Kyrgyzstan and Tajikistan this is a potential turning point, forcing a decision on which partner they want to prioritize: China or Russia?

Deciding whether to follow Putin into the Eurasian Union will be a decisive choice for both states in the year ahead, as it will force them to choose which they want to risk: the GDP they get from trade with China or the GDP generated from remittances from their nationals working in Russia. Putin has thrown down the gauntlet – they will now have to make up their minds whether their economic future is going to be closer to Moscow or Beijing. Their dichotomy is not quite as black and white as this, but this is nevertheless a power test. The choices they make will decide whether Russia or China has a stronger say in Central Asia.

Kyrgyzstan’s dilemma

There is a simple reason why Putin’s union matters so much to Kyrgyzstan and Tajikistan: trade with China. Unlike energy rich Kazakhstan, already in the Customs Union, Bishkek and Dushanbe’s economies are dependent on business with Beijing. Kyrgyzstan’s ‘shuttle trade’ business with China, where small traders cross borders as ‘tourists’ with their goods in suitcases in order to avoid Customs duties, accounts for roughly a third of its GDP.

On the other hand there is fear in Bishkek that if they do not deepen integration with Moscow then the millions of migrant workers it exports to Russia – whose remittances are also equivalent to a third of GDP – will be forced to carry international passports, or suffer far reduced quotas. The nightmare is that they will eventually end up barred from Moscow’s labour market by a full visa regime – something nationalist elements in Russia, including charismatic opposition leader Alexey Navalny, have been calling for.

These fears are well grounded: in December 2012 Putin warned that within three years he wanted to end the post-Soviet practice of migrants from the CIS being able to come to Russia on their internal passports, effectively ID cards – but Customs Union members will be exempted from the new requirement for international passports. Polls conducted by the independent Levada Centreshow over 60% of Russians supporting tighter immigration controls.

Visa-free admission to Russia and access to the Russian labour market may be soon be a thing of the past for Kyrgyz migrants. Photo: (cc) Shutterstock/FotograFFF

That free access to Russia can no longer be taken for granted is not lost on Kyrgyzstan. But at the same time the Kyrgyz elite fears that joining a Eurasian Union would mean effectively losing control over its border tariffs and regulations, and would destroy the rich network of new trade routes that are tying them into China, bringing them cheap goods and enabling a substantial re-export economy. These trade routes are economic lifelines for this fragile state – and for this network the Customs Union has all the potential to be a total disaster. As a former Kyrgyz cabinet minister put it to one of us in Bishkek last year, it would ‘decimate’ the country’s key markets in the south at Kara Suu and Osh. In his words, ‘almost every’ small business in Kyrgyzstan is reliant on trade with China and any new tariffs or rules would entirely change the local economy.

China: vulnerability and official indifference

Chinese officials insist that the expansion of the Customs Union matters little to them. Ambassador to Bishkek Wang Kaiwen put it succinctly to reporters in late November when he said: ‘Kyrgyzstan’s entry into this Customs Union will not affect trade relations with China.’ Kyrgyz-Chinese trade, he pointed out, oscillated somewhere between $5-$10 billion per annum, a figure that was ‘a small problem’ dwarfed by China’s overall foreign trade of $3 trillion. The question of whether ‘to join or not…should be your decision.’

This blunt response hides a complex reality. It is true that in the grand scheme of things, China’s trade with Kyrgyzstan is a drop in the ocean. The problem for China is that it is a drop that comes from one of the most troubled parts of one of its most restive provinces. China is not investing massively in its trade infrastructure with Central Asian countries for reasons of charity – but to stabilize its own restive Xinjiang Uygur province by turning it into a trade hub for this region.

The Eurasian Union would have a potentially damaging effect on the substantial investment China has made on both sides of its border. The erection of a Russia controlled tariff barrier between China and Kyrgyzstan is likely to have a chilling effect on trade coming out of Kashgar, at a time when the Chinese government has invested a great deal into trying to develop the southern city. Capital of a part of Xinjiang that has faced heightened ethnic tensions for decades, the government has spent a lot of money re-developing the old city and establishing a Special Economic Zone with the aim of turning it into a hub for Central Asian trade.

According to recent figures China invested some $91.91 billion into infrastructure in its ‘western provinces’ – an area that covers Tibet, Guizhou and Xinjiang. This is a focused strategy and Xinjiang sits in the middle of it. All of this will be threatened if suddenly traders no longer find it profitable to send their goods along the roads winding into the CIS from Kashgar. At the same time these traders’ choice of markets is surprisingly limited: without a route through Kyrgyzstan or Tajikistan they would have to travel through the Khunjerab Pass to Pakistan. The problem there is the roads on the Pakistani side remain woefully under-built. Their only other possible border crossing would be with Afghanistan, which remains firmly closed at time of writing.

Seen from China, these are unanswered questions. When one of us asked a group of academics in Urumqi, the capital of Xinjiang, what they thought of the Customs Union’s impact to China, they shrugged and in vague terms said they were ‘waiting to see’ if the Customs Union would actually come to pass across the whole region. In Shanghai and Beijing, everyone has stories of friends who have conducted surveys in the region that highlight its unpopularity. But this is largely behind closed doors. The official line is that espoused by Ambassador Wang, that ‘Kyrgyzstan’s entry into Customs Union will not affect trade relations with China.’ Nothing to see here, keep moving on…

A losing game for small states?

This used to be the sort of situation where Central Asians were in their element, masters of the game of playing one partner off against another. Kyrgyzstan in particular has cannily used access to its Manas airbase to extract large chunks of money from both America and Russia. This time it seems as though Moscow is playing a much harder game, forcing Bishkek into a decision that could ruin one aspect of its economy or another. How this plays out may end up determining the shape of the Kyrgyz economy. For all the talk about China in Central Asia, Putin is still able to compete with Beijing – and the choices made in Bishkek and Dushanbe will make it clearer whether Moscow is still the world power it dreams of being.