If relations between Russia and China strengthen, the two powers will struggle for common policy on possible Russian soft underbelly Central Asia, as well as on Afghanistan, Mongolia, the vital Europe/Asia Caucasus crossroads, the Baltics, Central and Eastern Europe and Southeastern Europe.
One description the Kremlin is not in favour of when it comes to describing Central Asia is “Russia’s soft underbelly”. Yet that is exactly what the region could turn out to be should Vladimir Putin’s bid for a new era of Russian greatness entirely unravel – and, as sympathetic to Russia as Xi Jinping might seem to be during his visit to Moscow, China is quietly positioning itself to ensure it does not waste opportunities if that turns out to be the future reality.
The most obvious area where Beijing in Central Asia is investing in projects that could shut Russia out of the picture is in trade transit. With European traders now often loathe to use East-West/West-East cargo transportation channels that cross Russia, China has become a big supporter of expanding capacities on the Middle Corridor – officially the Trans-Caspian International Transport Route, or TITR – connecting China to Europe via Kazakhstan, the Caspian Sea, Azerbaijan, Georgia and Black Sea routes or Europe-via-Turkey. And everyone wants a piece of the pie. The other four ‘stans’ – namely Kyrgyzstan, Uzbekistan, Tajikistan and Turkmenistan (with its Caspian Sea ports) – and even Iran are exploring how they can tap into TITR, while the European Union and US have committed funds to help make a big Middle Corridor expansion happen.
Last week, the UK became the latest country to join the party, when British Foreign Minister James Cleverly visited Astana and told Kazakh President Kassym-Jomart Tokayev that London would look at ways to support the development of alternative trade routes such as the Middle Corridor.
In a pointer to another reason why none of the major powers want to see the day where Russia entirely dominates Kazakhstan – the prospect of further developing its great mineral wealth, including uranium – Cleverly and Kazakh diplomats said they had signed a memorandum on critical minerals such as rare earth metals, though provided no details about it.
Across Central Asia, Kazakhstan and Uzbekistan in particular have offered no backing for Putin’s war in Ukraine. In fact they have exploited the situation to work on their multi-vector foreign policies and, while they go out of their way not to say anything that would spark open fury in the Kremlin, it’s quite clear that they want to avoid trade, investment and political orientations that are locked into Russian strategy and policy. While they also fear a future in which they have exchanged one autocratic big power for another, China, rather than Russia, is rather more likely to come up with the continued investment funding needed for development.
bne IntelliNews has been writing for several months now on how realistically Russia’s two centuries of Central Asia dominance are over and should a post-Ukraine-war Moscow, already no longer a regional hegemon, fail to have the staying power to play a continued big role in the “backyard” to its south, Beijing would likely not hesitate too long before stepping in.
One big reason why China would be wary of a declining Russia not having the resources to exert much effective influence in Central Asia is Afghanistan. While China has increasingly become the ascendant economic power in Central Asia, the understanding between Beijing and Moscow says that the latter should remain the political and military power in the region. With the US gone, Taliban-ruled Afghanistan often appears vulnerable to chaos that could spin out of any real control, with various anti-Taliban terrorist and militant groups ever more active in the country. Russia, which strives to guard the porous Central Asia/Afghanistan borders with military assets positioned at bases in Tajikistan and Kyrgyzstan, and China, which has a short border with Afghanistan, remain nervous of Afghanistan becoming an entirely failed state from where terrorists could spread north and east. The US, perhaps, would not be too disappointed to see Moscow and Beijing given this distraction.
As a country entirely encircled by Russia to the north and China to the south, Mongolia’s economic and foreign policy options are rather curtailed. While plainly no fan of Putin’s belligerence in invading Ukraine, Ulaanbaatar rather keeps its lips sealed as it goes about the business of upgrading Mongolia’s “frontier” economy.
Russia and China, however, are counting on their remote neighbour for some big projects. Mongolia said last week it will take a decision on which part of its territory will be used to construct a Russia-China gas pipeline once Moscow and Beijing reach an agreement on costs.
Russian energy giant Gazprom wants to build the 2,600-km Power-of-Siberia 2 gas pipeline to supply 50bn cubic metres of gas per year to China by 2030. Mongolian Prime Minister Luvsannamsrain Oyun-Erdene told Reuters that talks between his country’s two big neighbours had been put on the back burner due to the Ukraine war, but there was a likelihood of them coming back to the negotiating table. After Russia and China decide on pricing, Mongolia will take a decision on how they can use its territory to transport the gas, Oyun-Erdene added.
Nearly 80% of mineral-rich Mongolia's total exports go to China. Still, Mongolia, working with Anglo-Australian mining giant Rio Tinto at Oyu Tolgoi, is unlocking vast copper resources and could be sitting on major deposits of rare earths. To get the best reward, the country will want to maintain and widen links to global markets. Partly to that end, it is reaching out to South Korean investors, export and re-export channels.
In the South Caucasus, China’s main focus has been to develop the Middle Corridor trade link, as described above. Beijing sees the Middle Corridor as part of its much-trumpeted Belt and Road Initiative (BRI) for modern infrastructure and economic cooperation, though the nations of the South Caucasus – Georgia, Armenia and Azerbaijan – have their own reasons for promoting links westwards.
However, the nuts and bolts of the Middle Corridor – particularly the Georgian port connections on the Black Sea and the Azerbaijani port hubs on the Caspian Sea, as well as the rail connections from Georgia to Turkey – all still need a huge amount of investment before they can provide the scale required to replace existing trade routes.
Just as Kazakhstan cannot easily develop a major alternative non-Russian route for its westward oil exports – it quickly dawned on planners that there is a big shortage of tankers that ply the routes from Kazakhstan to Azerbaijan on the enclosed Caspian Sea – the desired hugely expanded Middle Corridor options cannot be provided overnight.
CENTRAL EUROPE & THE BALTICS
China has suffered a series of setbacks in Central Europe over the past few years, as pro-American regional politicians reacted to the changed mood in Washington as well as what they saw as high-handed interference by Beijing in their own affairs.
In the Czech Republic, a drive by previous president Milos Zeman to boost economic links with Beijing had always been controversial. Back in 2018, the country’s security services were among the first in Europe to warn against the alleged risk of using Huawei telecom technology. The government subsequently cancelled a contract with Huawei, and the main private telecom infrastructure company Cetin excluded it from the country’s telecom backbone.
The president’s pro-China policy then collapsed completely amid a backlash against Beijing’s criticism of elected officials’ trips to Taiwan. Prague City Council tore up its friendship treaty with Beijing and built up relations with Taipei. Straight after his election this January, incoming Czech President Petr Pavel pointedly held a telephone call with his Taiwanese counterpart before he talked to Beijing.
Moreover, the hoped for Chinese investments also failed to materialise – FDI from Taiwan is still higher than from China.
The Baltic States have gone the furthest in downgrading links with Beijing in response to the US change of policy towards China, as well as Chinese threats against Taiwan. All three states have now pulled out of the Beijing-led CEEC format offering a cooperation platform between Central and Eastern European countries and China.
Lithuania has taken the strongest measures and has faced the toughest response. In 2021, Lithuania allowed Taiwan to open an embassy in Vilnius under its own name rather than Taipei’s, leading to the imposition of unofficial trade sanctions by Beijing.
The EU eventually backed Lithuania in the dispute, though Brussels clearly felt that Vilnius had acted in a deliberately provocative manner.
Beijing’s last strong ally in the region is Viktor Orban’s Hungary, which is always keen to demonstrate its independence from the Western consensus and its supposed wealth of diplomatic options.
China’s Fudan University is building a huge campus in Budapest, despite criticism from the opposition-led city council. China has also been a big investor in Hungary, particularly in electric battery technology.
Some states in Southeast Europe are taking a similarly tougher line against China to their northern neighbours, most notably Romania which is an EU member and one of the closest US allies in the region.
In 2020, Romania broke off its agreement with China General Nuclear Power Corp. (CGN) for the building of two new reactors at Cernavoda nuclear power plant (NPP). The following year, Bucharest introduced a law setting strict terms for the licensing of software and hardware suppliers to 5G networks that appeared to be intended to keep Chinese tech giant out. Further attempts to keep Chinese companies out of major infrastructure projects followed.
Montenegro, meanwhile, welcomed Chinese funding for the construction of the Bar-Boljare motorway – a huge financial commitment compared to the size of its economy – that it then struggled to repay.
However, other countries in the region continue to welcome Chinese investments. China has invested widely into infrastructure projects in the Western Balkans, including the Budapest-Belgrade high speed railway, and Chinese companies have also snapped up a number of industrial assets.
Governments in the region have been especially keen to attract Chinese investments into coal-fired power plants, after most multilateral development banks stopped investing into coal projects. They included the coal power plants Kostolac B3 in Serbia, and the Tuzla 7, Ugljevik III and Banovići in Bosnia. Analysts at independent climate change think-tank E3G said in 2021 that one third of Bosnia and Herzegovina’s, and two-thirds of Serbia’s planned coal projects were reliant on Chinese investment, though some such as Tuzla 7 have since been shelved.