China unfazed by Tajikistan's flirting with Russia-led EEU

By bne IntelliNews December 4, 2014

Jacopo Dettoni in Almaty -

 

With just weeks to go before the Eurasian Economic Union (EEU) comes into being on January 1, Russia is still trying to convince Tajikistan to become part of its trade bloc. However, the Tajik authorities seem more concerned with strengthening ties with Beijing than Moscow.

Tajik President Emomali Rahmon's visit to China in November marked his third official meeting with his Chinese counterpart Xi Jinping just this year. Each meeting was followed by a string of announcements of multi-billion-dollar government-sponsored investments, loans and grants by Chinese companies.

China is already the country's largest trading partner, foreign investor and creditor, and it seems more committed than ever to turning poverty-stricken Tajikistan, which represents Beijing's shortest route to resource-rich Central Asian and Middle Eastern countries, into a key square of its Central Asian chessboard, regardless of whether or not the country will eventually join the EEU.

“China will likely continue its investment policy in Tajikistan first of all because the prospects of prospects EEU are not known at all,” Konstiantyn Bondarenko, chairman of Tajikistan Free Market Centre, a think-tank in Dushanbe, tells bne IntelliNews, referring to the fact that Tajik authorities have shown interest, but not formalized yet, their commitment to joining the Russia-led trade bloc, which also includes Kazakhstan and Belarus, as well as soon Armenia and probably Kyrgyzstan.

“Besides, China is pursuing a long-term strategy in Tajikistan and Central Asia as a whole, which, as such, takes note of the possibility of Tajikistan eventually joining the Union,” Bondarenko explains. “Should critical issues arise one day, Beijing will negotiate directly with Moscow on how to split the respective spheres of influence in the country.”

As China has grown increasingly interested in expanding its sphere of influence westward, Tajikistan has turned out to be one of the most important transit nodes for Chinese trade and economic expansion to the south-west, prompting Beijing to heavily invest in the development of basic transport and energy infrastructure across the country, such as the Pamir Highway to Western China.

“Tajikistan is a bridge to Afghanistan, where China, almost without spending a dime in the military campaign against the Taliban, already owns major mining and natural mineral deposits, and is beginning to develop the infrastructure needed to make the most of these resources,” Saodat Olimova, a former associate in the al-Farabi Carnegie Program on Central Asia and head of SHARQ (ORIENS), a Tajik independent research centre, tells bne IntelliNews.

“Tajikistan also provides China with access to Iran and the Middle East, their markets and oil and gas resources. A number of experts in Tajikistan believe that joining the EEU dramatically increases the attractiveness of cooperation between Tajikistan and China, because it would give China access to a wider market and increase Tajikistan's transit potential as it will be part of a customs union stretching from Dushanbe to Brest,” Olimova says.

Chinese investors have pledged to invest around $6bn into Tajikistan over the next three years. Line D of the Central Asia–China gas pipeline (CACGP) alone will account for $3.2bn of that, but Chinese investors are also looking at opportunities in road and railway developments, cement production, energy and mining. There is little reason to believe that such commitments will affected by a decision by Tajik authorities to join the EEU.

“In its current stage, the EEU does not affect Chinese interests in Tajikistan, since market integration in the transportation sector is not planned to start until the end of 2017, while the integration of the energy sector is not planned to start until 2025,” Aza Migranyan, head of the Economics Department of the CIS Institute, tells bne IntelliNews. “This will be a sufficient amount of time for China to master their investment projects.”

Chinese whispers

If Chinese investment represents a rare opportunity for Tajikistan, a country otherwise snubbed by most of the foreign investment community, to develop badly needed infrastructure and unleash economic potential, it brings risks too.

Chinese state-sponsored projects give the local authorities a free hand to deal with local issues related to the project, but only as long as the underlying Chinese interests are not threatened. This generally leads to little accountability and empowers corrupt elites. For example, the opaqueness that dogged the development of the Dushanbe-Chanak (Uzbek border) toll road, financed through a $280mn Chinese loan, were highlighted in a report by Crisis Group in 2011.

In addition, the windfall effect to the overall economy is limited by the fact that most Chinese-backed projects are developed using Chinese workers and Chinese materials. The scale of Chinese interests may even imperil Tajikistan's sovereignty. “Figures on Chinese interests in the Tajik economy are contradictory, but it is believed that the vast majority of Chinese funds (over 80%) are loans that increase the country's state debt,” SHARQ's Olimova says.

“As it loses its economic independence [through growing Chinese debt], Tajikistan will be allowing unhindered access to mineral and other resources, and offering controlling stakes in strategic enterprises as forms of payment... And it can be assumed that the expansion of the Chinese in Tajikistan can cause resistance in the population,” she says.

Olimova says the scale of China’s expansion into and lending to Tajikistan reminds her of the unhappy experiences of China's other satellite countries such as Burma, which fell under Beijing's sphere of influence when China invested billions of dollar into developing its vast natural resources and transport infrastructure leading to the Indian ocean.

Given this, the EEU could even turn out to become a natural hurdle preventing China from completely taking over Tajikistan, and Tajik authorities may keep it in mind as negotiations over the country's future EEU membership continue.

Kanat Shaku contributed research for this article.

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