China’s Eurasian Pivot: The Silk Road Economic Belt 9781138079656, 9781351024945

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Whitehall Paper 88

RUSI

www.rusi.org

China’s Eurasian Pivot The Silk Road Economic Belt

Raffaello Pantucci and Sarah Lain

www.rusi.org

Royal United Services Institute for Defence and Security Studies China’s Eurasian Pivot: The Silk Road Economic Belt Raffaello Pantucci and Sarah Lain First published 2017 Whitehall Papers series Series Editor: Professor Malcolm Chalmers Editor: Dr Emma De Angelis RUSI is a Registered Charity (No. 210639) ISBN 978-1-138-07965-6 Published on behalf of the Royal United Services Institute for Defence and Security Studies by Routledge Journals, an imprint of Taylor & Francis, 4 Park Square, Milton Park, Abingdon OX14 4RN SUBSCRIPTIONS Please send subscription orders to: USA/Canada: Taylor & Francis Inc., Journals Department, 530 Walnut Street, Suite 850, Philadelphia, PA 19106, USA UK/Rest of World: Routledge Journals, T&F Customer Services, T&F Informa UK Ltd, Sheepen Place, Colchester, Essex CO3 3LP, UK All rights reserved. No part of this publication may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publisher.

Contents About the Authors Acknowledgements Map

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Introduction

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I. China’s Grand Strategy: The Belt and Road Initiative

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II. Domestic Drivers for the Belt and Road Initiative

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III. The Plan: Infrastructure and Integration

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IV. Perception Problems of the Belt and Road Initiative from Central Asia

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V. Finance and Economics of the Belt and Road Initiative

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VI. Silk Road Security

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Conclusions

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About the Authors

Raffaello Pantucci is Director of International Security Studies at RUSI. His research focuses on counterterrorism and China’s relations with its Western neighbours. He is the author of We Love Death As You Love Life: Britain’s Suburban Terrorists (Hurst, 2015). His journal articles have appeared in Survival, The National Interest, Studies in Conflict and Terrorism, Terrorism and Political Violence, and the RUSI Journal among others, and his journalistic writing has appeared in the New York Times, Financial Times, Wall Street Journal, Sunday Times, CNN, The Guardian, Foreign Policy, South China Morning Post, and more. Sarah Lain is a Research Fellow at RUSI, where her research focuses on the post-Soviet space, in particular Russia and Central Asia. In 2016 she was appointed specialist adviser to the UK Parliament’s Foreign Affairs Committee, assisting it on its inquiry into UK–Russia bilateral relations. She works on a range of issues, including Russia–UK relations, Russia’s foreign policy in Syria and Ukraine, and the domestic and regional dynamics of Central Asian states.

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Acknowledgements

There are numerous people who helped in the research and events on which this paper is based. The authors would like to particularly thank Director Li Yihai and his team at the Shanghai Academy of Social Sciences for their support with the Shanghai conference that brought together experts from across Europe, Central and South Asia, as well as other parts of China. The authors are also grateful to Dr Nargis Kassenova and her colleagues at KIMEP for their support with the workshop in Almaty, Rector Abdumalik A Djumanov at the University of World Economy and Diplomacy and his colleagues at ISMI for their support with the workshop in Tashkent, and, finally, General N C Vij and his team at the Vivekananda International Foundation for their support in New Delhi. A special note of thanks is also due to Sabrina Downey and her team at RUSI for their help in coordinating these events from London, and our RUSI editorial colleagues for their support and comments in producing this Whitehall Paper. We are also very grateful to all of those who took the time to talk to us during our research trips – there are too many to name them all here, but we thank them for their hospitality and patience. Finally, we are grateful to those who have contributed articles to China in Central Asia (http://www.chinaincentralasia.com), where interested readers can find additional work by the authors on the themes central to this text. You can also follow them on @ChinaEurasia.

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Map 1: Six Land Corridors That Would Potentially Make Up the Silk Road Economic Belt.

INTRODUCTION

China’s growing global influence is changing its behaviour on the world stage, as the country finds itself assuming a greater role in international politics and development. Nowhere can this shifting approach be better found than in Beijing’s Belt and Road Initiative (BRI). Aspiring to build infrastructure and connectivity projects that will encourage commercial and trade cooperation, the BRI encompasses China’s domestic and world view: that economic development is the key to stability, creating a zone of economic prosperity that will bring it security. Building on years of investment and effort, the BRI across China’s western borders is an expression of geopolitical and geoeconomic effort and investment that is best characterised as China’s Eurasian Pivot. Reconnecting China to its near-neighbourhood, it is transforming the Eurasian continent and enhancing China’s role across it. Pitched as a win-win project and politically benign, the BRI has been met with general enthusiasm but also some suspicion by some players in the 65 countries that China has identified as making up the Belt and Road. This in part stems from the fact that no blueprint or detailed plan has been made available by Beijing, so there has been some confusion as to what exactly it means and where its parameters lie. As a result, many countries that are captured under the BRI’s broad banner (as well as other states observing from the outside) have assumed that there are hidden geopolitical strings attached. Developments in Central and South Asia provide useful case studies of how the project may unfold, and where the economic relations and accompanying influence enshrined in the BRI rhetoric already exist, and have done for some time. The root of the research question on which this paper is focused can be found in three announcements from 2013, a year that saw the articulation of three foreign policy concepts: the China–Pakistan Economic Corridor (CPEC), announced in May 2013 when China’s Premier Li Keqiang made his first foreign policy visit as leader to Pakistan;1 the Silk Road Economic Belt (SREB), announced in September 2013 when President Xi Jinping 1

Xinhua, ‘Li’s Visit Opens New Chapter in China-Pakistan Relations’, 24 May 2013.

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visited Astana in Kazakhstan and spoke at Nazarbayev University;2 and the Twenty-First Century Maritime Silk Road (MSR), announced when President Xi visited Jakarta in October 2013.3 These three projects offer the outline of what has become the BRI (previously referred to as One Belt, One Road or OBOR). They are the clearest outline of a foreign policy vision that Xi has offered so far and provide a lens through which to understand how Chinese thinking on international relations is developing in the Xi Jinping administration. The aim of this paper is to examine what the BRI represents to China’s neighbouring regions beyond its western borders, and how the countries in these regions, as well as China, see its implementation and subsequent impact. Apart from Central and South Asia, this paper will also examine how Russia has received the project, not only because China shares a border with Russia, and Russia is therefore part of the relevant neighbourhood, but also because of the effect China’s growing economic influence is having on Russia’s traditional sphere of influence in Central Asia. While initially conceived prior to the announcement of the BRI, as the paper’s research proceeded, it became clear that this broader foreign policy concept offered by Beijing would become an increasingly important factor for China, with particular relevance to Central and South Asia. Many of the approaches now being captured or deployed under the BRI overall are ones which China has been undertaking in Central and South Asia for many years, making these regions something of a testing ground for the BRI. This paper therefore focuses on the land routes of the BRI – the CPEC and the SREB. Under the CPEC, Chinese investment in Pakistan is transforming the country into a corridor of infrastructure connecting Kashgar, in China’s far west Xinjiang region (officially the Xinjiang Uighur Autonomous Region, XUAR), to Pakistan’s Gwadar and Karachi ports. President Xi’s speech announcing the SREB in Astana outlined the five aims of the project: policy communication; road connectivity; trade facilitation; monetary circulation; and people-to-people exchanges.4 At its root, the SREB is similar to the CPEC in terms of reconnecting western China to its Eurasian neighbourhood and ultimately to Europe.

2 Ministry of Foreign Affairs of the People’s Republic of China, ‘President Xi Jinping Delivers Important Speech and Proposes to Build a Silk Road Economic Belt with Central Asian Countries’, 7 September 2013. 3 Wu Jiao and Zhang Yunbi, ‘Xi in Call for Building of New “Maritime Silk Road”’, China Daily USA, 4 October 2013. 4 Ministry of Foreign Affairs of the People’s Republic of China, ‘President Xi Jinping Delivers Important Speech and Proposes to Build a Silk Road Economic Belt with Central Asian Countries’.

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Introduction

Both the SREB and the CPEC aim to build and upgrade roads, pipelines, railways, ports, oil refineries, factories and production plants linking China’s west all the way to Europe, enhancing economic relations through connectivity. This is something that China has already been doing in these regions for many years, and thus the CPEC and the SREB have become terms accentuating China’s existing economic and strategic relationships in South and Central Asia respectively. In contrast, the MSR remains somewhat abstract. While the broad outline is comprehensible – to ‘develop maritime partnership in a joint effort to build the Maritime Silk Road of the 21st century’,5 as laid out by President Xi in Jakarta – the detail is lacking. Furthermore, cutting across sea lanes and maritime spaces, where China has complex and hostile relationships, the MSR seems a much more complicated proposition. Central and South Asia are also significant because China’s cooperation there has formed the outward demonstration of the domestic drivers behind the BRI. China’s particular interest in these border regions is ultimately about development at home, where Beijing is worried about stability in Xinjiang (its westernmost region beset by inter-ethnic tensions between the Han and Uighur populations), and sees domestic economic prosperity as inextricably linked to the development of neighbouring countries. From China’s perspective, this prosperity is key to stabilising Xinjiang, and in many ways, this has now become the central philosophy of the whole BRI concept: that ‘win-win’ investment in infrastructure will result in domestic economic prosperity, which in turn will provide conditions for ensuring social and political stability. Although the realities are likely to be more complex than China’s declarations, part of this paper seeks to better understand the workings of China’s proposed vision. In many cases, soft loans provided by China’s Export-Import Bank or China Development Bank (CDB) finance projects, which are usually implemented by a Chinese company and workforce. This mechanism is likely to continue, but with the launch of the BRI, China is further diversifying its funding mechanisms. By setting up the Silk Road Fund (a new state-owned investment fund) and the international Asian Infrastructure Investment Bank (AIIB), China is not only proving its commitment to the wider concepts around the BRI, but also promoting its own role in Asian development alongside the many other international financial institutions already in existence. The BRI therefore becomes a new umbrella under which China’s ‘Go Out’ policy is implemented.

Embassy of the People’s Republic of China in Romania, ‘Work Together to Build a 21st-Century Maritime Silk Road’, 28 January 2015.

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Despite this emphasis on economics, China’s expanding influence in Central and South Asia, which will be further promoted through the BRI, raises questions about China’s increased involvement in regional security. This expresses itself in three ways. First, with increased investment and economic interests abroad, China will undoubtedly need to protect its assets from damage, instability or, in some cases, attack. It also needs to protect Chinese nationals who are working to build and maintain those interests. China cannot always depend on local actors to provide adequate security. Second, it is still not completely clear whether or how China will take a more direct role in other domestic or regional security matters where it shares a common interest with the partner state, such as counterterrorism, an issue that preoccupies many of the BRI countries discussed in this paper. Third, and potentially the most controversial in light of China’s traditional policy of ‘non-interference’, is the question of whether China becomes more involved in the internal political issues of partner countries that may block the progress of the BRI or its individual infrastructure projects. Arguably in all of these areas, China is aware of the risks and is already engaged, to different degrees. This reality is one of the most significant changes in China’s approach to foreign policy that the BRI may be impacting. The aim of this paper is to explore these issues in order to offer a more in-depth understanding of the BRI, examining the CPEC and the SREB in particular. China’s success in conducting connectivity projects with its western and southwestern neighbours is crucial for fulfilling the country’s overall domestic objectives. A key interest is how those encountering the SREB and the CPEC on the ground perceive them and what the likely impact could be, both positive and negative, particularly as a formal foreign policy stamp is put on China’s growing influence to the west and south. In so doing, a clearer understanding will emerge of what China’s new foreign policy approach looks like, along with lessons that may be useful to opinion-formers and policymakers trying to manage, engage or understand China’s rise.

Research Objectives and Methodology This paper draws on research and analysis from a two-year project.6 The research objective was to examine the importance of the SREB and the CPEC within China’s foreign policy and its implications for China’s influence in nine countries near China: Russia; Kazakhstan; Kyrgyzstan; 6

The paper’s research also builds on earlier work on Central Asia that can be found at the China in Central Asia blog, , accessed 10 November 2016.

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Introduction

Uzbekistan; Turkmenistan; Tajikistan; Afghanistan; Pakistan; and India. The initial intent was to better understand China’s growing influence over its western borders, but as research was undertaken and the BRI projects or concepts of the SREB and the CPEC came to the fore, the project’s focus became reframed as the countries focused on are strong case studies for what China seeks to achieve through the BRI, as well as the challenges that the BRI will face. They are also gateway countries for China’s development at home, as well as a bridge to reach other markets – two key objectives of the CPEC and the SREB. Rather than concentrate on individual bilateral relations, the focus of the research was to understand China’s new foreign policy approach holistically across the region. The first year consisted of open source research, supplemented by face-to-face interviews on nine research trips conducted by the authors covering China (Shanghai, Beijing and Ürümqi), Russia (Moscow), Kazakhstan (Atyrau, Astana and Almaty), Kyrgyzstan (Bishkek and Osh), Uzbekistan (Tashkent), Turkmenistan (Ashgabat), Tajikistan (Dushanbe), India (New Delhi) and Pakistan (Islamabad). The security situation prevented the authors from travelling to Kabul in Afghanistan, so interviews were conducted remotely and Afghan participation was secured during the regional workshops and conferences. Afghanistan was a focus for discussions at many of these events. The authors spoke to approximately fifteen to 20 people in each country and sought to cover a wide range of actors, including: academics; government officials, particularly in the Ministry of Foreign Affairs and ministries responsible for economic development and infrastructure; economists; business people; representatives from local Chinese embassies; foreign diplomats; and market traders. The first year culminated in a conference in Shanghai, held in conjunction with the Shanghai Academy of Social Sciences, which brought together representatives from the ten countries involved, including China, who mainly work in the think tank, academic and business worlds. The second year of research sought to explore in greater detail specific themes relevant to the SREB and the CPEC based on the first year of research, as well as expose Chinese experts to the views of how the initiative was being seen from the ground. These themes were identified as economics, security and infrastructure for both the SREB and the CPEC and were the subject of three separate workshops: one addressing economics held in Almaty in Kazakhstan; one on security in Tashkent in Uzbekistan; and one on infrastructure in New Delhi in India. During the New Delhi workshop, particular attention was paid to Afghanistan, with an additional half-day discussion including Afghan and Chinese officials. The aim was to bring China specialists to the region to exchange ideas. Each workshop drew a group of approximately 20 participants, including

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RUSI representatives and host country experts (usually from the partner institute with which RUSI was holding the workshop), as well as two China specialists. The China specialists were thought leaders in the relevant field, drawn from prominent universities and think tanks. The research had three main objectives. First, it sought to understand China’s rationale behind announcing the BRI and how it planned to implement it. Second, the research trips were aimed at gathering information on how stakeholders in the nine neighbouring countries viewed the project, and what they understood its objectives to be and how they would be implemented. Third, it sought to understand the overall effect of the BRI on China’s economic, political, social and security influence in the region. In concluding, this paper sketches out a clearer understanding of how the BRI is being implemented and seen in China’s immediate western and southwestern periphery, offering an understanding of the geopolitical context and logic behind China’s Eurasian Pivot, as well as some thoughts for policymakers who are seeking to better understand both what China’s BRI actually looks like on the ground and how they might engage with it.

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I. CHINA’S GRAND STRATEGY: THE BELT AND ROAD INITIATIVE

Origins of the Belt and Road Initiative The abrupt dissolution of the Soviet Union left China with a series of unresolved border disputes with three of the newly established independent countries of Central Asia (Kazakhstan, Kyrgyzstan and Tajikistan) and with Russia. To diminish the border tensions that had developed as a result of longstanding confrontations and ill-defined borders, a regional subgrouping of China, Russia, Kazakhstan, Kyrgyzstan and Tajikistan was created, which in 1996 was formalised as the Shanghai Five. Initially the group was established to discuss security confidencebuilding measures and mutual reduction of military forces in the border areas between the participants, but it soon evolved beyond that. The group continued to meet regularly and the agenda gradually shifted to include further regional cooperation on security and peace-building measures. The goodwill this generated led to the phrase ‘Shanghai Spirit’, which embodied the group’s core value of mutually beneficial cooperation. In 2001, the Shanghai Five expanded to include Uzbekistan and evolved into the Shanghai Cooperation Organization (SCO). This was a significant moment as it was the first time that China had been involved in a multilateral military organisation outside the UN. Unlike other agreements or treaties that China had participated in at a multilateral level, the SCO had a secretariat and a specific mandate for regional security concerns. The dramatic nature of this development, however, was largely overshadowed by the attacks of 11 September 2001 on the US, which completely changed the frame through which the West in particular engaged with Central Asia. China has also pursued bilateral and multilateral projects with its southern neighbours. In 1999 in Kunming, China grouped together with India, Bangladesh and Myanmar to establish a regional grouping called the Bangladesh–China–India–Myanmar (BCIM) Economic Corridor, which

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offered a general structure through which Beijing could engage its southeastern neighbours. And China’s relationship with Pakistan has always been close, born out of an alliance against India, a desire to counter common regional threats in Afghanistan and to help China deal with Uighur militant networks that have often used Afghanistan and Pakistan as bases for operation. However, despite this push to establish frameworks and build friendly relations to the west and south, China’s foreign policy priorities have concentrated on its neighbours to the east, and the US. A longstanding focus of Chinese foreign policy, the relationship with the US is still the main priority for Beijing. This became even more of a priority when in 2009 the US embarked on its Asia Pivot to focus attention away from the Middle East, towards the more prosperous Asia.1 Publicly declared in 2011 by then Secretary of State Hillary Clinton,2 this policy shift was seen by Beijing as an effort to contain and stop China’s regional dominance. This concern was specified in China’s 2015 Military Strategy white paper, which stated that ‘the US carries on its “rebalancing” strategy and enhances its military presence and its military alliances in this region’. Therefore, the authors felt, China must ‘safeguard its maritime rights and interests’.3 Not all agreed with this focus on perceived US interference in the Pacific. In a 2011 article that received much attention within China and globally, Professor Wang Jisi, Dean of the Peking University School of International Studies, said that China needed a single organising principle for its foreign policy.4 He noted that in July 2009 then President Hu Jintao said China’s diplomacy should ‘safeguard the interests of sovereignty, security and development’, outlining the country’s broad overarching geostrategic principles.5 However, China needed to be more specific in its framework and Wang identified two prominent strands in Chinese foreign policy thinking. The first was an approach that saw the US as China’s pre-eminent enemy and formulated most foreign policy around this central organising principle. However, Wang saw this as too antagonistic and likely to run counter to China’s interests. The second strand built on former leader Deng Xiaoping’s maxim of ‘keeping a low profile in

Kurt Campbell and Brian Andrews, ‘Explaining the US “Pivot” to Asia’, Chatham House, August 2013. 2 Hillary Clinton, ‘America’s Pacific Century’, Foreign Policy, 11 October 2011. 3 State Council Information Office of the People’s Republic of China, ‘China’s Military Strategy’, 26 May 2015. 4 Wang Jisi, ‘China’s Search for a Grand Strategy: A Rising Great Power Finds Its Way’, Foreign Affairs (March/April, 2011). 5 Ibid. 1

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China’s Grand Strategy: The Belt and Road Initiative

international affairs’,6 which also appeared to be insufficient, given China’s growing role in the world and the security threats it found itself facing. One alternative concept that Wang identified was to refocus on China’s western neighbourhood, building on foreign policy advantages while also helping to develop its underdeveloped western regions (whose problems were brought into sharp relief in 2009 with rioting in Ürümqi, discussed below). In October 2012 Wang formalised this vision into a phrase, advising Beijing to ‘march west’.7 The proposal to march west suggested that Beijing focus on its neighbours to the west, Central and South Asia, as well as the Middle East. This would not only help to realise the aims of the Great Western Development Strategy, launched under Hu Jintao’s predecessor Jiang Zemin, which sought to address the economic imbalance between the developed eastern and the less-developed western regions of China, but would also help to rebalance Zhongnanhai’s efforts between land and sea, and reduce the risk of unnecessarily destructive confrontation with the US.8 Instead, China could focus on an area from which the US was retreating, presenting economic and security spaces for China to fill. Furthermore, such a move could open up new opportunities for mutually beneficial cooperation with the US on security and stability matters, given mutual security concerns in Afghanistan. A prime example of how this might materialise is the Quadrilateral Coordination Group (QCG) on Afghan Peace and Reconciliation, created in December 2015 at Beijing’s instigation with Washington. The group included Afghanistan, China, Pakistan and the US. Moreover, a march west approach already had a strong foundation, given China’s existing trade and infrastructure ties with Russia, Central Asia and South Asia through bilateral and multilateral frameworks like the SCO. Whether Professor Wang provided the rationale behind China’s subsequent geopolitical action is unclear, but the concept certainly appears to be part of the founding premise for China’s Eurasian Pivot.

Defining the Project First launched publicly in September 2013 during a visit to Astana, in Kazakhstan, President Xi Jinping spoke of establishing the SREB that would ‘open the strategic regional thoroughfare from the Pacific Ocean to the Baltic Sea, and gradually move toward the set-up of a network of 6 Charles Clover and Luna Lin, ‘China Foreign Policy: Throwing Out the Rule Book’, Financial Times, 31 August 2016. 7 Wang Jisi, ‘March West: China’s Geopolitical Strategy of Rebalancing’, Global Times, 17 October 2012. 8 Zhongnanhai serves as the central headquarters for the Communist Party of China and the State Council (central government) of the People’s Republic of China.

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transportation that connects Eastern, Western and Southern Asia’.9 The essence of the vision was to enhance all forms of connectivity across Eurasia, including trade, transport, policy coordination and people-topeople ties. This was closely followed in October 2013 by Xi’s announcement in Jakarta of another major collaborative project, the MSR, to promote efficient transport routes between major ports to better connect China with South Asia, the Middle East, Africa and the Mediterranean through the Indian Ocean. Together they create what was initially called the OBOR initiative, but has now been renamed the BRI, a connectivity project involving 65 countries, representing the personal stamp that Xi has placed on China’s foreign policy.10 A striking feature of the project is that the BRI has since become a catchall term for Chinese investment in connectivity, which confuses terminology and discusses different corridors interchangeably. The government departments responsible for coordinating the BRI – the Ministry of Foreign Affairs, the National Development and Reform Commission (NDRC) and the Ministry of Commerce – released a government Action Plan in March 2015. It provided a broad remit for the project, saying the SREB will connect China to ‘Central Asia, Russia and Europe (the Baltic); linking China with the Persian Gulf and the Mediterranean Sea through Central Asia and West Asia; and connecting China with Southeast Asia, South Asia and the Indian Ocean’.11 This report highlighted six land corridors that would make up the SREB: 1. The New Eurasia Land Bridge Economic Corridor: a network of transport links between Chinese and European cities, passing through Kazakhstan, Russia, Belarus and Poland. 2. The China–Mongolia–Russia Economic Corridor: an agreement to increase trilateral cooperation, combining the SREB, Russia’s part of the Eurasia Land Bridge and Mongolia’s Steppe Road project. 3. The China–Central Asia–West Asia Economic Corridor: commitment to building infrastructure and cooperating on trade, investment, finance, transport and communication with the five Central Asian states as well as Turkey and Iran (West Asia). Xinhuanet, ‘Xi Suggests China, C. Asia Build Silk Road Economic Belt’, 7 September 2013. 10 The change of name was in part a product of the reality that there was more than one route in both directions, and the somewhat paradoxical fact that the ‘road’ actually also described sea lanes. 11 National Development and Reform Commission, Ministry of Foreign Affairs and Ministry of Commerce, People’s Republic of China, ‘Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road’, 28 March 2015. 9

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4. The China–Indochina Peninsula Economic Corridor: commitment to greater infrastructure cooperation between China and the five Indochina peninsula countries: Laos; Vietnam; Thailand; Cambodia; and Myanmar. 5. The BCIM Economic Corridor: improving connectivity between Kunming and Mandalay, Dakha and Kolkata. 6. The CPEC.12

Examining these corridors, the catch-all nature of this terminology becomes a little clearer. First, these corridors often comprise existing infrastructure that has now been subsumed under the BRI. For example, a train from Chongqing in China to Duisburg, Germany has been in operation since 2011 as part of the New Eurasia Land Bridge Economic corridor, and so is in itself not a new project,13 and the BCIM has been discussed and promoted since 1999. The road from Kashgar to Karachi Port in Pakistan already exists, and is being enhanced as part of the CPEC. Second, these corridors may also be more symbolic of multilateral agreements between corridor countries and China to enhance cooperation by integrating existing national projects. For example, the China– Mongolia–Russia Economic Corridor stemmed from an agreement at the SCO summit in Dushanbe, Tajikistan in September 2014, where a trilateral agreement was made to incorporate the SREB, Russia’s renovation of its section of the New Eurasia Land Bridge and Mongolia’s Steppe Road project.14 This grants additional legitimacy to the BRI. Additionally, although the routes and projects constituting the SREB are not necessarily defined within these corridors, a general SREB route has been illustrated publicly. A map released by Chinese news agency Xinhua shows that the route replicates the ancient Silk Road routes, running from China to the West through Central Asia, Iran, Turkey, Greece and up to Moscow, then through to Western Europe. The exact terminology and routes, however, are much less important for Beijing than the essence of the BRI overall, which is China’s global endeavour to cooperate more proactively on international infrastructure, transport, communications and trade development to maximise connectivity, particularly across Eurasia. Indeed, the Chinese government has not released detailed official maps of the project – most of those that have been China-Britain Business Council and Foreign and Commonwealth Office, ‘One Belt One Road: A Role for UK Companies in Developing China’s New Initiative: New Opportunities in China and Beyond’, September 2015. 13 HKDTC Research, ‘The Belt and Road Initiative’, 21 January 2016. 14 Ibid. 12

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published (including the one in this report) have been drafted by journalists or other analysts on the basis of how they think the route should flow. What has been offered with much greater clarity is a vision for the routes of the CPEC, formally announced during Premier Li Keqiang’s inaugural visit to Pakistan in late May 2013, soon after he had assumed office, alongside President Xi Jinping. As Premier Li stated during the visit, ‘We are ready to work with Pakistan to speed up the project of upgrading the Karakoram Highway, actively explore and develop the long-term plans of building a China-Pakistan economic corridor, expanding our shared interests’.15 In April 2015 President Xi formalised the plan by signing agreements with Pakistan promising to invest $46 billion in the project.16 Moreover, routes have been more formally defined, unlike the SREB. In May 2015, Pakistan’s planning and development minister, Ahsan Iqbal, defined three routes of the CPEC, known as a Western, Central and Eastern route, and some recent media articles have referred to an approved list of ‘CPEC status’ projects between Pakistan and China.17 The Western route will connect cities in underdeveloped Balochistan and Khyber Pakhtunkhwa; the Central route will go through Balochistan, Punjab and Khyber Pakhtunkhwa; the Eastern route will go from Gwadar through the more prosperous regions of Sindh and Punjab. In other words, in contrast to the broader SREB vision, which appears to be a far looser set of projects that are described under the same banner, the CPEC appears to be a specific list of infrastructure and power projects that are being mostly funded and implemented in Pakistan with Chinese support. For clarity, this paper will use the SREB to refer to China’s trade, infrastructure and development cooperation with Russia, Central Asia and South Asia (India and Afghanistan) under the auspices of the BRI, therefore indicating a route closer to, but not matching, the Xinhua map. The research also focused on the CPEC as a separate project specific to China–Pakistan relations, and because the CPEC is increasingly being referred to as a ‘keynote’ project of the BRI. Afghanistan does not feature on maps of the SREB or CPEC, and India is officially more relevant for the MSR. Many interlocutors interviewed in Central and South Asia were unclear as to whether Afghanistan is included at all, or whether it could be bypassed given its location, but as subsequent events (such as trains Nick Macfie, ‘China’s Li Effusive in Praise of Pakistan, But Not Everyone Buys It’, Reuters, 23 May 2013. 16 BBC News, ‘China’s Xi Jinping Agrees $46bn Superhighway to Pakistan’, 20 April 2015. 17 See, for instance, Khalid Mustafa, ‘Gwadar-Nawabshah LNG Pipeline Fails to Get Status of CPEC Project’, International News, 6 October 2016. 15

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going from China to Afghanistan,18 as well as conferences in Kabul on the BRI19) make clear, the country is certainly included rhetorically within the Belt and Road and has been discussed practically by the Chinese ambassador to Kabul.20 Moreover, China is building infrastructure and investment relations with both Afghanistan and India advertising these under the banner of the BRI. Thus, for the purposes of this research, this paper will include them as SREB countries. More centrally for the overall BRI, this paper will concentrate on the SREB and the CPEC, rather than other Asian land corridors or the maritime routes. As will be shown, the CPEC and the SREB are the most advanced routes, and, given their direct impact on western China, are priorities for Beijing.

Xi Jinping’s Foreign Policy While the broader approach undertaken as part of the BRI is part of a pattern of Chinese foreign policy that has been ongoing for more than a decade in Central Asia, the BRI has its roots in a desire by President Xi to change the nature of China’s relations with its neighbours. In October 2013, Xi hosted a rare Communist Party work forum – the first major meeting on foreign policy of its kind since 2006. This was an opportunity for Xi to lay out his vision for China’s foreign policy to the Standing Committee of the Politburo, organs of the Central Committee, State Counsellors, relevant foreign affairs officials and selected Chinese ambassadors. President Xi took the opportunity to highlight ‘periphery diplomacy’ to ‘1) enhance political good will; 2) deepen regional economic integration; 3) increase China’s cultural influence; and 4) improve regional security cooperation’.21 This outline sounds similar to the broader vision of the BRI laid out by Xi in 2013 in Islamabad, Astana and Jakarta as he announced the different initiatives (CPEC, SREB and MSR respectively) that would be brought together under the banner of the BRI. Seen from the ground in China’s Eurasian neighbourhood, the BRI has a far more immediate and obvious impact in terms of economics, infrastructure and influence. It does not, so far, have clear evidence of excessive political influence in the manner of Russia’s concepts of ‘spheres of influence’ – an approach that is most obvious in former Soviet 18 Eltaf Najafizada, ‘China Lays New Brick in Silk Road with First Afghan Rail Freight’, Bloomberg, 11 September 2016. 19 Xinhua, ‘One Belt One Road Seminar Held in Afghan Capital’, 8 May 2016. 20 H E Yao Jing, ‘The Belt and Road Upgrades China-Afghanistan Relations’, Kabul Times, 22 March 2016. 21 Michael D Swaine, ‘Chinese Views and Commentary on Periphery Diplomacy’, China Leadership Monitor, 28 July 2014, p. 2, , accessed 10 November 2016.

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parts of Eurasia where Moscow continues to hold heavy sway through political influence and military support. China’s growing economic dominance over other powers in the region has been an unfolding narrative for some time, and the SREB and the CPEC simply give it a name. As investment and attention from other powers has waned or come with political strings attached, China’s has consistently grown, and its investment approach does not come with the same political conditions that are often attached to Western investments. This makes China very attractive to Central Asia’s regional governments which take offence at what is often seen as Western preaching and inconsistency. There is also an additional foreign policy implication of the SREB and the CPEC. Through it, China is becoming a champion of Asian development, as it believes it should be. China has bilaterally cooperated with international financial institutions (IFIs) and development banks, but the BRI has sparked the creation of China’s own multilateral IFI, the AIIB. This has already pledged investment to infrastructure projects, mainly in cooperation with other development banks and mostly in BRI countries. China is also finding ways of incorporating other ‘silk roads’ into its own plans. While Beijing sees its vision as benign, the degree to which this approach is warmly received across Central and South Asia varies (and will be addressed in greater detail later).

New Silk Roads With an infrastructure deficit in Asia of around $8 trillion, according to the Asian Development Bank (ADB), connectivity has become one of the driving forces of regional development and integration.22 In many cases, these Asian connectivity visions evoke the idea of the Silk Road. South Korea has developed its own Eurasia Initiative, which former President Park Geun-hye cited in a number of visits to the region. Building on Seoul’s history with the region, in part based on the historical ethnic Korean communities scattered across Central Asia, the aim of the vision is to support South Korean companies, gain access to resources and develop relations. India’s Connect Central Asia policy has its roots in the first 2012 India– Central Asia dialogue. The aim again is to help India’s industry develop relations in the region and open trade partnerships and corridors. Japan has not enunciated a similar strategic vision, but the government has been proactive in trying to develop its relations with Central Asia. In addition, Asian Development Bank, ‘Who Will Pay for Asia’s $8 Trillion Infrastructure Gap?’, 30 September 2013, , accessed 9 December 2016.

22

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China’s Grand Strategy: The Belt and Road Initiative

large IFIs have developed overarching strategies for the region founded on connectivity, such as the ADB’s Central Asia Regional Economic Cooperation Program or Transport Corridor Europe-Caucasus-Asia, a project supported by the EU and the European Bank for Reconstruction and Development (EBRD). In July 2011, then-Secretary of State Hillary Clinton gave a speech in Chennai in which she called for the development of a ‘New Silk Road’.23 Although focused on Afghanistan, the proposal was similar to China’s, seeking to establish a series of corridors – for power, markets, roads and rail – that linked Afghanistan to Central and South Asia. The basis of the idea from Washington’s perspective was to get Afghanistan’s neighbourhood to take a greater role in stabilising a country that the US had sought to stabilise through force and investment in the previous decade. The specific use of the Silk Road terminology was to tie the vision to the region and its history – but that irritated China, which saw itself as the owner of the Silk Road terminology, given it was the source and end point of many of the historical silk routes. While all these visions have their own logic, they share a fundamental objective: to develop infrastructure; create opportunities for national companies; open up markets; and increase regional prosperity. The US’s New Silk Road project immediately showed its limitations. When asked about the initiative, interviewees in Central and South Asia tended to view it as flowing in the wrong direction. One Western diplomat based in Bishkek said that ‘the east to west Silk Road is going more with the grain and logical. North to south [the US New Silk Road] is counterintuitive’.24 The US initiative was put forward at a time when the political narrative in Washington was advocating less involvement in foreign conflicts and deescalation of effort in Afghanistan. Outsider analysis of the project was that it was a way for the US to transfer its regional responsibilities after the conflict in Afghanistan onto others and disengage from a region that was far away and held little interest – strategic, economic or otherwise – to Washington. This highlighted a sentiment often felt in the Central Asian states towards Western stakeholders – that interest in the region was erratic and inconsistent, depending on foreign policy towards Afghanistan. However, a key reason that the US project has not progressed is that the US did not back its initiative with extensive finance, in stark contrast to China. The two biggest infrastructure projects associated with it, the Turkmenistan–Afghanistan–Pakistan–India (TAPI) pipeline (also known as the Trans-Afghanistan pipeline) and the Central Asia–South Asia (CASAUS Department of State, ‘Hillary Rodham Clinton: Remarks on India and the United States: A Vision for the 21st Century’, 20 July 2011. 24 Authors’ interview with Western diplomat, Bishkek, September 2014. 23

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1000) power lines project, have only recently started to progress, as they are reliant on IFI money and lack a clear commercial champion. In contrast, China’s proposal is broader in its regional focus, based on a strong history of consistent and growing economic investment in a key target region and backed by real financial commitment. It is worth commenting further on the US as Washington plays a major role in Beijing’s strategic thinking. The Chinese leadership consistently sees the US as the yardstick against which its rise on the international stage is measured, with the relationship with Washington seen as the most significant international relationship China has. Seen through the prism of the relationship with Washington, the BRI is a way of diversifying supply and trade routes that are vulnerable, particularly to any US assertive action – something researchers like Nadège Rolland, senior fellow for Political and Security Affairs at the National Bureau of Asian Research, have characterised as the ‘Malacca dilemma’. Eighty per cent of China’s energy supplies from the Middle East and West Africa, and some trade,25 pass through the Strait of Malacca, so China seeks to reduce dependence on this route. Diversification of routes is a logical objective, but Rolland also makes the point that building the BRI land routes is a way to bypass sea lanes ‘subject to U.S. naval dominance’.26 Developing land routes and opening up ports in Pakistan, such as Gwadar, provides China with alternative routes to sea that are not controlled by Washington. At the same time, as will be shown later, there is a strategic theory in Beijing that the Chinese leadership was excessively focused on its maritime relationship with the US to the detriment of its Eurasian neighbourhood. It is equally clear that in China’s immediate Central and South Asian neighbourhood, US interests and attention are more limited. Over time it has become clear that the US is a less committed competitor than others in this region.

Chen Shaofeng, ‘China’s Self-extrication from the Malacca Dilemma and Implications’, International Journal of China Studies (Vol. 1, No. 1, January 2010), pp. 1–24. 26 Nadège Rolland, ‘China’s New Silk Road’, National Bureau of Asian Research, 12 February 2015, p. 3. 25

16

II. DOMESTIC DRIVERS FOR THE BELT AND ROAD INITIATIVE

Xinjiang: The Threat to Domestic Security Foreign policy initiatives frequently have domestic interests at their core and China’s BRI is no different. Central to understanding the logic of the SREB and the CPEC are China’s underdeveloped western regions, neglected and fast outpaced by the development of China’s coastal cities in the east. In some specific regions, such as the XUAR, this disparity has played out against an already tense ethnic balance and led to instability and violence against Chinese citizens and the state. This violence and instability is something that directly challenges the authority of the Chinese Communist Party (CCP), bringing into question its ability to govern and rule the entire country as a unified whole. While China’s is an authoritarian government, the CCP can only maintain its grip on power as long as it is able to effectively dominate, and demonstrate its authority over, the entire country. Consequently, stability and prosperity across the whole of China become central issues for Zhongnanhai to focus on. Xinjiang is China’s westernmost region, bordering Central Asia, specifically Afghanistan and Pakistan. According to the government’s Action Plan, China ‘should make good use of Xinjiang’s geographic advantages and its role as a window of westward opening-up to deepen communication and cooperation with Central, South and West Asian countries, make it a key transportation, trade, logistics, culture, science and education center, and a core area on the Silk Road Economic Belt’.1 Although an international project, a key driver of the SREB is to secure economic growth, and therefore stability and security, for Xinjiang.

1

National Development and Reform Commission, Ministry of Foreign Affairs and Ministry of Commerce, People’s Republic of China, ‘Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road’.

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Xinjiang occupies a sixth of China’s landmass, and is home to around 1.63 per cent of its population, amounting to 21.82 million citizens.2 Xinjiang has large oil and gas reserves (about a fifth of the national total of oil), and about 40 per cent of the nation’s coal reserves (coal remains China’s main source of electricity generation).3 Xinjiang also has a major agrarian industry, with 70 per cent of China’s tomatoes grown in the province.4 However, it is as landlocked as the Central Asian powers to which it is adjacent and lacks internal transport links, which hinders domestic trade. It can take almost 25 hours to reach Kashgar from Ürümqi (1,588 kilometres) by train. Improving these logistics will make Xinjiang more attractive to foreign markets, a key priority of the SREB plan. One of the key challenges facing the region is that it is beset by tensions, particularly between the Uighurs – an ethnic group with diaspora in Turkey and Central Asia, who are Muslim and speak a Turkic language similar to Uzbek – and Han Chinese. Uighurs once made up a majority in the region, with census data from 1953 indicating that at the time the province was 75 per cent Uighur and 6 per cent Han.5 Figures from the 2010 census show a stark demographic change, with a population of 45.84 per cent Uighur and 40.48 per cent Han.6 There is resentment against the growing numbers of Han Chinese in the region. The Uighur population feels that its identity and culture are slowly being eroded through policies of assimilation and that Beijing profits from the region’s natural wealth. Erkin Alptekin, former president of the World Uyghur Congress, has stated that ‘the Chinese want to replace us with their own people as colonists, and assimilate those of us who remain, wiping out our culture’.7 Certain state policies appear to confirm this perspective, particularly those linked to religious expression as a response to Uighur violence. These include Muslim men in Xinjiang being fined or imprisoned if they do not shave their beards, women being banned from wearing burqas and civil servants and students being

2 Stanley Toops, ‘Spatial Results of the 2010 Census in Xinjiang’, China Policy Institute: Analysis, 7 March 2016. 3 Edward Wong, ‘China Invests in Region Rich in Oil, Coal and Also Strife’, New York Times, 20 December 2014. 4 Huidian Research, ‘Research and Development Forecast of China’s Tomato Products Industry, 2014–2018’, February 2014. 5 Stanley Toops, ‘Demographics and Development in Xinjiang after 1949’, East-West Center, Washington Working Papers No. 1, May 2004. 6 See URHP, ‘Spatial Results of the 2010 Census in Xinjiang’, , accessed 12 December 2016. 7 Stephen Schwartz, ‘Beleaguered Uyghurs: Oppressed Minority, Terrorist Recruits, or Both?’, Weekly Standard (Vol. 009, Issue 39, 2004).

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banned from fasting during Ramadan.8 Moreover, despite government investment in the region, Uighurs still feel at a disadvantage. Reza Hasmath has found that discrimination is still holding back even welleducated Uighurs, with employers often hiring Han Chinese instead.9 An additional source of resentment relates to a policy in place since 2011 through which Xinjiang officials have been promoting ‘bilingual education’, mainly meaning that most schooling must be conducted in Mandarin. Although this potentially helps Uighur communities find employment later in life, it is also seen by local Uighur communities as a way to suppress their culture.10 This resentment has resulted in periodic violence. Most dramatically, in July 2009 there was violent rioting in the region’s capital, Ürümqi. Figures vary – the government put the death toll at 184, but the real number is believed to be higher.11 The initial spark for the violence was a student protest in Ürümqi. This was in response to an incident in Shaoguan, where an anonymous internet post claimed that six Uighur men had raped two Han women. This led to a fight between Uighur and Han workers in the area, resulting in two Uighur men being fatally wounded. The protest in Ürümqi was in response to a lacklustre investigation of the fight by authorities, again highlighting resentment at the perceived neglect of the Uighur community as being less important than that of the Han.12 The protest in Ürümqi descended into violence and confrontation with authorities as Uighurs allegedly took to brutally attacking any Han Chinese they came across. Police were unable to bring the violence under control for some time, and the following day, angry Han took to the streets in counter-marches to protest against both the Uighur-led atrocities and the failure of the authorities to protect them. In a particularly dramatic scene, regional party chief Wang Lequan was captured on film on top of a car pleading with crowds outside official buildings as they angrily protested and threw empty bottles and other garbage at him.13 Wang had been in office for fifteen years and was well known for his hardline policies and proximity to then Premier Hu, and his shocking predicament highlighted the degree to which the government had failed in the Al Jazeera America and Agence France-Presse, ‘Activists Call China’s Jailing of Muslim Over Beard “Absurd”’, 30 March 2015; Matt Payton, ‘Ramadan 2016: China Bans Civil Servants and Students from Fasting in Mainly Muslim Region’, The Independent, 7 June 2016. 9 The Economist, ‘Don’t Make Yourself at Home’, 17 January 2015. 10 The Economist, ‘Tongue Tied’, 27 June 2015. 11 UNHCR Refworld, ‘China Raises Xinjiang Death Toll to 184’, 11 July 2009. 12 Andrew Jacobs, ‘At a Factory, the Spark for China’s Violence’, New York Times, 15 July 2009. 13 The Economist, ‘The Party under Siege in Urumqi’, 10 September 2009. 8

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province. The violence forced Hu to leave the G8 Summit in L’Aquila, Italy to return home to manage the crisis. In the wake of the violence, numerous regional public officials were dismissed, including Ürümqi’s CCP Secretary Li Zhi, Xinjiang police chief Liu Yaohua and eventually Wang Lequan himself, who was moved to the position of deputy of the Politics and Law Committee in Beijing.14 Although this role is significant, it was clearly a demotion for Wang, highlighting the state’s response to the failure of the regional authorities to maintain stability. Part of the government’s response was a growth in security spending in Xinjiang and ‘strike hard’ campaigns focused on aggressive security clampdowns.15 These have been particularly public, with a visible heavy security presence around Uighur areas in major cities and surveillance of mosques. It has also included more drastic approaches to curtailing expressions of Uighur Islamic identity. Regulations have been applied uniquely to Xinjiang against expressions of Muslim religious identity – the rules are not applied in other Muslim parts of China such as Ningxia. These policies are clearly more specifically targeted at Uighur minorities and their historical desire for independence, rather than Chinese Muslims in general, which reinforces the sense of persecution that Uighurs feel. The Xinjiang government has also targeted high-profile Uighurs who speak out against such policies. A prominent Uighur economics professor at Beijing’s Minzu University, Ilham Tohti, was jailed for life in 2014 for ‘separatism’ and ‘inciting subversion’.16 The sentence was clearly aimed at deterring others from speaking out. Although Tohti criticised punitive measures used by the authorities, his writing had always advocated that Xinjiang should remain part of China, and he had expressed opposition to the use of violence by Uighurs against the state. Telecommunications have also been controlled. In the immediate wake of the rioting in 2009, the internet was blocked in the region for between six to ten months (reports are inexact). The region has also experienced periodic, abrupt, blocking of text messages and instant messaging, as well as other obstructions with using the internet.17

Malcolm Moore, ‘China Removes Communist Party Chief in Xinjiang’, Daily Telegraph, 25 April 2010. 15 Edward Wong, ‘China Nearly Doubles Security Budget for Xinjiang’, New York Times, 13 January 2010. 16 Carrie Gracie, ‘China Jails Prominent Uighur Academic Ilham Tohti for Life’, BBC News, 23 September 2014. 17 For example, in the immediate wake of the 2009 riots, the internet and messaging services were blocked for six months. See Michael Bristow, ‘China Allows Texting in Xinjiang Six Months after Riots’, BBC News, 18 January 2010. More recently, China blocked those who attempted to download foreign communications apps or used 14

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Domestic Drivers for the Belt and Road Initiative

Separatism: The Threat of Militant Groups China’s concerns in Xinjiang in part stem from a desire to contain the threat of separatism, namely militant groups or groups attempting any attack on the political status quo. In 2009, then President Hu Jintao stated that the riots in July 2009 were masterminded by ‘separatist forces at home and abroad’.18 The fight against separatism, extremism and terrorism is a key domestic and foreign policy concern for China. Crucially for the key question at the heart of this paper, China’s Central and South Asian neighbours hold a similar threat perception, enshrined in the fact that combating these ‘three evils’ is the central ideological pillar of security cooperation within the SCO. Although the attacks in 2009 are likely to have been fuelled by local resentment, there has also been evidence of radicalisation to violent Islamist groups and ideologies among the Uighur community. Historically, militant Uighur groups have had ties with fighters in Afghanistan and Pakistan. Reports from the Taliban period in Afghanistan (from both Taliban,19 and Al-Qa’ida sources20) show how there was a substantial Uighur community hiding out in the country. In the wake of the general jihadi exodus from Afghanistan after the US intervention in 2001, others reported finding Uighurs in large numbers in Pakistani training camps in Waziristan in 2008.21 More recently this community appears to have returned to Afghanistan – analysts point to the Pakistani Operation Zarb-e-Azb (an effort by the Pakistani state to confront militant groups fighting the state in the country’s northwestern provinces) that was initiated in June 2014 as the trigger. Uighurs have been involved in organised militant groups in the region either as part of independent organisations, most notably the Turkestan Islamic Party (TIP, previously known as the East Turkestan Islamic Movement, or ETIM) or subsumed into larger organisations, such as Al-Qa’ida. The TIP has claimed or praised a number of attacks in China, including an attack in Kashgar in the run-up to the Beijing Olympics in 2008, an attack at a train station in Ürümqi in April 2014 and an attack on Tiananmen Square in October 2013. It is unclear how valid these claims are, and to what degree groups such as the TIP are connected to any virtual private networks (VPNs). See Paul Mozur, ‘China Cuts Mobile Service of Xinjiang Residents Evading Internet Filters’, New York Times, 23 November 2015. 18 CNN, ‘Hu Calls for Reform in China’s Uyghur Region’, 26 August 2009. 19 Mullah Abdul Salam Zaeef with Alex Strick van Linschoten and Felix Kuehn (eds), My Life with the Taliban (London: Hurst, 2011), p. 135. 20 See Mustafa Hamid and Leah Farrall, The Arabs at War in Afghanistan (London: Hurst, 2015), p. 247; and Brynjar Lia, Architect of Global Jihad: The Life of Al-Qaida Strategist Abu Mus’ab Al-Suri (London: Hurst, 2007). 21 Paul Cruickshank, ‘The 2008 Belgium Cell and FATA’s Terrorist Pipeline’, CTC Sentinel (Vol. 2, No. 4, April 2009), p. 3.

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networks within China. Jacob Zenn has noted that rather than masterminding them, the TIP is more likely to be ‘cheerleading’, capitalising on separate incidents fuelled by anger from the Uighur community.22 Uighur militants have also joined international fights beyond Afghanistan. The Chinese government has estimated that 300 Chinese citizens, many of whom are thought to be Uighurs, are fighting with Daesh (also known as the Islamic State of Iraq and Syria, ISIS).23 Leaked Daesh records have supported this estimate, identifying that between mid2013 and mid-2014 more than 100 Chinese nationals joined its ranks, nearly all of them from Xinjiang.24 Exact numbers of fighters on the battlefield are unclear, but on the basis of video material, official numbers and unofficial statements, it is believed the actual number may be near 500. In contrast, the TIP has fought with Jabhat Al-Nusra in Syria, which was until recently affiliated with Al-Qa’ida, and it has rejected Daesh, recently releasing a video that criticises the group and its ‘illegitimate caliphate’.25 The TIP has also released numerous videos, recordings and images showing large numbers of Uighurs fighting Syrian President Bashar Al-Assad’s regime alongside groups such as Jaysh Al-Fatah and other Salafi jihadi groups.26 It has continued to pledge its allegiance to Al-Qa’ida and the Taliban, with its leader, Abdul Haq, releasing a video in May 2016 highlighting the TIP’s proximity to the group and the continued existence of a leadership cadre in Afghanistan while most were fighting in Syria.27 In July 2016, this link was further strengthened when Al-Qa’ida leader Ayman Al-Zawahiri released a video praising Uighur fighters and their longstanding historical link to Al-Qa’ida’s global struggle.28 The exact drivers behind these individuals leaving China to join groups in Syria is not always clear, although the video material they release regularly highlights the plight of Uighurs in Xinjiang, and calls on citizens of ‘East Turkestan’ (the separatist name for Xinjiang that was Jacob Zenn, ‘China’s Counter-Terrorism Calculus’, China Brief (Vol. 16, No. 2, January 2016). 23 Qiu Yongzheng, ‘Turkey’s Ambiguous Policies Help Terrorists Join IS Jihadist Group: Analyst’, Global Times, 15 December 2014. 24 Nate Rosenblatt, ‘All Jihad is Local: What ISIS’ Files Tell Us about its Fighters’, New America, July 2016. 25 Bill Roggio and Thomas Joscelyn, ‘Turkistan Islamic Party Leader Criticizes the Islamic State’s “Illegitimate” Caliphate’, FDD’s Long War Journal, 11 June 2016. 26 Zenn, ‘China’s Counter-Terrorism Calculus’. 27 Roggio and Joscelyn, ‘Turkistan Islamic Party Leader Criticizes the Islamic State’s “Illegitimate” Caliphate’. 28 Thomas Joscelyn, ‘Zawahiri Praises Uighur Jihadists in Ninth Episode of “Islamic Spring” Series’, FDD’s Long War Journal, 7 July 2016. 22

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briefly used when a part of the region proclaimed independence in the first half of the twentieth century) to rise up against Beijing or leave to join the groups fighting and training abroad. This correlates with the findings of independent researchers when interviewing some of the fighters in Turkey.29 This is the most significant concern for the Chinese state: that a network of fighters is seeking to train and gain experience abroad to ultimately return and fight in China, to destabilise the country in an attempt to create an independent state from what is currently known as Xinjiang. Although the threat from domestic terrorism is certainly real and in some cases has shown links externally, the absence of independent verification means that, given the spate of attacks that have happened in recent years, China’s emphasis on links to external or international terrorism has come under criticism for its perceived exaggeration. Michael Clarke has said: ‘It’s not that China shouldn’t be concerned [about ETIM’s ties to Pakistan and Central Asian countries], but the core issue is that the linkages have been exaggerated by the Chinese government’.30 Many of the attacks seem to be rudimentary in nature. However, by assuming these are organised by ‘separatist’ elements, China makes Xinjiang a domestic security problem that warrants a security crackdown. Unfortunately, in some cases, there seems to be evidence that the state security response is in fact fuelling the drivers behind more violence.31 At a regional level, however, this narrative resonates; most Central and South Asian governments concur with China’s assessment of these groups being a threat and will therefore support China’s security efforts against them.

Stability Through Economic Development For Beijing, the solution for ensuring domestic stability is not just a blunt security response. Seen from the outside, Xinjiang faces a binary approach from Beijing: an aggressive security crackdown; and heavy economic investment. For Beijing, the heavy economic investment is in fact the long-term security response – a logic that permeates the broader BRI concept. In a speech in May 2014 at the Fourth Summit of the Conference on Interaction and Confidence Building Measures in Asia, President Xi emphasised this view, saying: ‘Development is the foundation of security, 29

Author interview with independent researcher who had spent time in Turkey in summer 2016 interviewing Uighurs. 30 BBC News, ‘Q&A: East Turkestan Islamic Movement’, 1 November 2013. 31 Michael Clarke, ‘China’s “War on Terror” in Xinjiang: Human Security and the Causes of Violent Uighur Separatism’, Griffith Asia Institute, Regional Outlook Paper No. 11, 2007.

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and security the precondition for development … For most Asian countries, development means the greatest security and the master key to regional security issues’.32 In an interview with the Financial Times, Jin Liqun, president of China’s newly established AIIB, stated: ‘The Chinese experience illustrates that infrastructure investment paves the way for broad-based economic social development, and poverty alleviation comes as a natural consequence of that’.33 From Beijing’s perspective, this is most relevant for Xinjiang, where economic underdevelopment is seen as part of the cause of its tendency towards instability, and therefore prosperity offers the answer to the region’s problems. Again, the BRI was not the starting point of this approach, as the underdevelopment of China’s western regions has long been an issue. As early as 1999, then General Secretary of the Communist Party Jiang Zemin proposed the foundations of what became the Great Western Development Strategy. This was aimed at addressing the imbalance created between eastern and western China following Deng Xiaoping’s reforms in the 1980s that led to exponential growth in China’s coastal cities from Shenzhen to Shanghai in order to ‘accelerate their opening to the outside world’.34 At the CCP Central Committee Meeting on Aiding the Poor in June 1999 Jiang said, ‘In continuing to accelerate the development of the eastern coastal region, we should lose no opportunities to speed up the development of the central and western regions’.35 Later that month he used the phrase ‘great western development’.36 The strategy that emerged was aimed at reducing regional disparity by focusing economic development efforts on China’s western provinces, including Xinjiang, although in reality most of the developments appeared to be focused on Yunnan in the far southwest and the central provinces. The State Council released a set of policy measures in 2000, and a leading group to coordinate the strategy was set up.37 The main thrust of the reforms was

Ministry of Foreign Affairs of the People’s Republic of China, ‘New Asian Security Concept for New Progress in Security Cooperation’, Remarks at the Fourth Summit of the Conference on Interaction and Confidence Building Measures in Asia By HE Xi Jinping, President of the People’s Republic of China, 21 May 2014. 33 James Kynge, ‘How the Silk Road Plans Will Be Financed’, Financial Times, 9 May 2016. 34 Deng Xiaoping, ‘The Central Leadership Must Have Authority’, 12 September 1988, , accessed 14 November 2016. 35 Hongyi Harry Lai, ‘China’s Western Development Program: Its Rationale, Implementation, and Prospects’, Modern China (Vol. 28, No. 4, October 2002), p. 436. 36 Xinhuanet, ‘Western Development Strategy Put Forward’, 30 June 1999. 37 Zheng Lu and Xiang Deng, ‘China’s Western Development Strategy: Policies, Effects and Prospects’, Munich Personal RePEc Archive (MPRA) Paper No. 35201, 5 December 2011, p. 3. 32

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Domestic Drivers for the Belt and Road Initiative

to build up infrastructure and encourage investment through preferential tax rates, bank loans, improved land-use rights and increased state funding to the regions. There was some success and it did significantly increase the average annual growth rate of real GDP per capita between 2001 and 2010 in the western provinces.38 The 2009 attacks in Ürümqi provided a new impetus for reinvigorating the focus on China’s western regions and Xinjiang in particular. The embarrassing situation of then President Hu having to leave an international conference to deal with domestic problems was not only humiliating, but also illustrated how the policies in Xinjiang had failed. Following the violence, Hu promised more solid measures to increase economic growth and social development in Xinjiang as a means to build ethnic harmony.39 In November 2009, investigation teams made up of government officials went to Xinjiang to collect data first hand about the social and economic situation with a view to using the research to create reforms to boost the economy in the region. In March 2010 the leaders of nineteen affluent Chinese provinces and cities met in Beijing to determine ways to provide assistance to Xinjiang’s development. This resulted in a ‘pairing assistance’ model. For example, Shanghai was tasked with supporting the development of the Kashgar Prefecture in southwest Xinjiang. Participating provinces and cities were required to grant money from their annual budget to Xinjiang as part of the programme. It also involved delegation visits from the paired cities to Xinjiang to advise on development.40 On 17–19 May 2010 Beijing hosted the Xinjiang Work Conference. Focused on ‘leapfrog development’ of the region, the conference proposed economic reforms aimed at the welfare of local people. These included reforms of resource tax on oil and gas in order to increase tax revenue for the regional government; the encouragement of various banks, including those that were foreign owned, to open outlets and branches in remote areas; income tax exemptions for enterprises operating in poorer areas; and the development of new special economic zones.41 The CCP’s Central Committee and the State Council hosted the conference, involving then President Hu Jintao and then Premier Wen Jiabao, as well as both of their successors, Xi Jinping and Li Keqiang. The

38

Ibid. China Daily, ‘Chinese President Tells Xinjiang Leaders to Work for Unity’, 26 August 2009. 40 Shan Wei and Weng Cuifen, ‘China’s New Policy in Xinjiang and its Challenges’, East Asian Journal (Vol. 2, No. 3, July–September 2010). 41 Ibid. 39

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high-level participation highlighted the degree of importance that the central leadership placed on Xinjiang’s development. Another economic innovation aimed at tackling Xinjiang’s economic development was the transformation of the relatively moribund Ürümqi Foreign Economic Relations and Trade Fair, established in 1992, into an international China–Eurasia Expo in 2011. This was designed to bring in traders, businessmen and officials from across the Eurasian landmass to Ürümqi – a city described by one Ürümqi official as the ‘closest big Chinese city to Europe’.42 Attracting foreign and domestic investment into Xinjiang has become a government priority, with limited success. The vision painted by then Premier Wen during the second China–Eurasia Expo in 2012 was that it would help transform Xinjiang and Ürümqi into ‘a gateway for mutually beneficial cooperation between China and other Eurasian countries’.43 Xinjiang has attracted some foreign investment and has been a political focal point for the Chinese government in bilateral trade negotiations with other countries. During the 2011 China–Eurasia Expo, an agreement was signed to build a Turkish–Chinese business park outside Ürümqi to attract Turkish investment to the region.44 This was twinned with a similar endeavour in Izmir in Turkey. In 2012 German motorcar manufacturer Volkswagen agreed, with its Chinese joint venture partner SAIC Motor, to build a sedan factory in the province,45 but rumours circulated that Volkswagen had been given little choice in the matter.46 In September 2015, then British Chancellor of the Exchequer George Osborne visited Xinjiang in an attempt to attract Chinese investment to the UK, but also to discuss British investment in the region.47 There has also been domestic pressure to invest. Chinese companies based in affluent coastal provinces were actively encouraged to invest in the region – usually at the behest of their local authorities, which saw it as part of their contribution to the government policy of developing Xinjiang. For example, subsidiaries of Guangzhou-based companies specialising in a range of goods and services increased investment in the Xinjiang region at the request of its provincial 42

Author interview with government official, Ürümqi, September 2012. English.people, ‘Chinese Premier Wen Jiabao’s Speech at Opening Session of Second China-Eurasia Expo’, 3 September 2012. 44 Xinhua, ‘NW China City to Build Sino-Turkish Industrial Co-Op Base’, 2 September 2011. 45 Joey Wang, ‘Shanghai-Volkswagen Starts Work on New Factory in Xinjiang, China’, Car News China, 29 May 2012. 46 Ibid. 47 George Parker, Lucy Hornby and Geoff Dyer, ‘Osborne Seeks Trade in China’s Restive Xinjiang Region’, Financial Times, 22 September 2015. 43

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Domestic Drivers for the Belt and Road Initiative

government in Guangdong. This demonstrates the key aim of previous government policies towards Xinjiang, and one that is central to the SREB and the CPEC in particular: to build up Xinjiang’s economy, and its people’s prosperity, Xinjiang must not only build its own infrastructure and investment climate, but also increase trade with partner countries over the border. Another domestic driver of the BRI also relates to the broader Chinese economy. While Xinjiang is a key factor in understanding China’s Eurasian Pivot, it does not on its own explain the drive behind Beijing’s push across China’s western borders. The other driver is the slowdown in the Chinese domestic market and the push to get China’s state-owned enterprises (SOEs) to ‘Go Out’ (as the policy is termed) into international markets. In 2016, China’s annual GDP growth was at its lowest level since 1990 and the IMF forecasts that GDP could dip below 6 per cent per annum by 2020.48 Although growth rates have stabilised, the World Economic Forum noted the continuing challenges of the decline in China’s labour force, the shift in China’s economic model, in which productivity will be increasingly driven by domestic innovation, and the unsustainability of China’s high investment levels (currently 50 per cent of GDP) in light of the country’s total debt reaching 237 per cent of GDP (in the first quarter of 2016).49 Overcapacity, particularly in heavy industry related to construction, has been a growing challenge. The BRI offers an opportunity to export the excess capacity through investments in overseas infrastructure. One report by the Hong Kong-based investment banking company CLSA said, ‘China’s top priority is to stimulate the domestic economy via exports from industries with major overcapacity such as steel, cement and aluminium’.50 As domestic opportunities for infrastructure development diminish, the BRI allows a defined outlet for infrastructure investment abroad, which fits well with China’s Go Out policy. Simultaneously, President Xi has also sought to address overcapacity by overhauling the often inefficient and unprofitable network of SOEs that dominate heavy industry in China. As the National Bureau of Asian Research states, large SOEs in the infrastructure, energy and advanced manufacturing industries have suffered from domestic overinvestment, Katy Barnato, ‘China GDP Growth to Fall Below 6% by 2020: IMF’, CNBC, 12 August 2016. 49 Jonathan Eckart, ‘8 Things You Need to Know about China’s Economy’, World Economic Forum, 23 June 2016. 50 Francis Cheung and Alexious Lee, ‘A Brilliant Plan: One Belt, One Road’, CLSA, , accessed 30 January 2017. 48

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China’s Eurasian Pivot

low domestic household consumption and the Chinese economic slowdown. Part of the solution is therefore to look outside China and win contracts along the BRI routes.51 In forcing companies to invest outside, Beijing is in part trying to make them competitive in international markets, which will require them more generally to reform. The BRI becomes a tool for driving this reform, as Chinese companies find themselves having to adapt to new environments and increasingly partner with foreign companies, which obliges them to adopt international standards. In the 1990s, then Premier Zhu Rongji sought to force SOEs to reform and become more market-driven, supposedly leading to a shake-up that saw 60,000 businesses closed and 40 million workers lose their jobs in a bid for greater efficiency.52 President Xi has taken inspiration from Zhu in his reform agenda, proposing the sale of shares in SOEs, the consolidation of companies to reduce their high number, a boost in public–private business ventures and a crackdown on corruption. Companies can no longer so easily write off large losses as the economy slows. These debts can be serious, as shown in September 2016 when Guangxi Nonferrous Metals Group, a Chinese state-owned metal producer, was declared bankrupt.53 One of the company’s creditors was CDB, which is crucial in providing soft loans to BRI countries. China’s total debt-to-GDP ratio rose from 150 per cent to 282 per cent between 2009 and 2014 after local governments used a government assistance package, following the 2008 financial crisis, to increase construction, despite the lack of domestic demand.54 There is some scepticism as to whether the BRI can ‘solve’ China’s economic problems and overcapacity, as pushing overcapacity abroad will hardly help address these structural issues. While it provides an outlet, China requires structural economic reforms for this issue to be truly addressed.55 According to Bonnie S Glaser and Matthew P Funaiole, overinvestment is the real problem plaguing the Chinese economy.56 (See

Kyle Churchman, ‘China’s Vision for a New Asian Economic and Political Order’, National Bureau of Asian Research, 22 December 2015. 52 Bloomberg, ‘China Leaders Consult Old Master Zhu Rongji Over Reform’, 15 September 2015. 53 Cathy Zhang, ‘Guangxi Nonferrous Metals is China’s First Interbank Bankruptcy’, South China Morning Post, 20 September 2016. 54 Matthew Fulco, ‘Solving the Prickly Issue of Overcapacity in China’, CKGSB Knowledge, 14 June 2016. 55 OECD, ‘Structural Reforms Can Help China Settle into a “New Normal” Era of Slower, But More Sustainable and Inclusive Growth’, 20 March 2015. 56 Bonnie S Glaser and Matthew P Funaiole, ‘Geopolitical Consequences of China’s Slowdown’, Center for Strategic and International Studies, 16 November 2015. 51

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Domestic Drivers for the Belt and Road Initiative

the section Return on Investment? in Chapter V for further discussion on this issue.) Despite these problems, the success of the BRI vision is also ultimately important for the Communist Party’s continued legitimacy in China. A slowdown in the economy, a reduction in domestic opportunities for infrastructure development, exacerbated by overcapacity, and the security situation in Xinjiang present direct threats to the government’s credibility as the guarantor of national stability. In its absence, the public may start to question CCP rule and rise up against it. While it is an authoritarian government, the CCP nevertheless must consider public contentment as part of its state policies to avoid calls for political change that it cannot control. Having watched the collapse of the Soviet Union and its impact on Russia, Beijing has little interest in a similar situation occurring in China, which helps to explain the refusal by Zhongnanhai to loosen control over politics, as well as the heavy focus on developing the domestic economy. By bringing together a number of key strands to address the problem of domestic stability, the BRI in Eurasia becomes a main driver of Beijing’s domestic strategy, as well as a key lens through which China sees its interactions with the world.

29

III. THE PLAN: INFRASTRUCTURE AND INTEGRATION

At the heart of the SREB and the CPEC are infrastructure development, investment, and the provision of opportunities for Chinese businesses to ‘Go Out’ and implement these projects. This connects with the need for investment in Asian infrastructure. The ADB estimates that $290 billion would be required for specific regional infrastructure projects.1 The World Bank has said that South Asia in particular is one of the least economically integrated regions in the world.2 Commitment to China’s overarching goal has been clear. On his tour of the region in 2013, during which he announced the SREB project in Astana in Kazakhstan, President Xi Jinping signed a series of infrastructure and investment deals, which resulted in deals worth $30 billion in Kazakhstan, including an agreement for China to acquire a stake in Kashagan, Kazakhstan’s giant oil field. A deal of $3 billion was agreed with Kyrgyzstan, including funds for the construction of power plants, as well as $15 billion of investments in Uzbekistan.3 Turkmenistan and China signed thirteen new energy deals and agreed to increase gas supplies to China by 25 billion cubic metres a year.4 In 2014 Xi visited Tajikistan and signed a $5-billion billion direct investment deal.5 China and the Central Asian states have agreed an array of subsequent bilateral investment deals throughout 2014–16. The SREB and the CPEC have also given additional energy to China through deals with South Asian partners. In a very recent development, the first direct cargo train from China pulled into Hairatan, northern

1

Asian Development Bank Institute, Infrastructure for a Seamless Asia (Tokyo: Asian Development Bank and Asian Development Bank Institute, 2009). 2 World Bank, ‘How Can South Asia’s Firms Better Compete?’, 5 October 2016. 3 Aleksandra Jarosiewicz, ‘A Chinese Tour de Force In Central Asia’, Centre for Eastern Studies (OSW), 18 September 2013. 4 InoZpress, ‘Turkmenistan and China Signed a New Energy Contract’, 23 October 2013. 5 Yu Lintao, ‘Getting Tight with Tajikistan’, Beijing Review, 22 September 2014.

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The Plan: Infrastructure and Integration

Afghanistan, in September 2016.6 President Xi announced investment of $46 billion in the CPEC in April 2015, approximately $33 billion of which will be funnelled into energy projects, including LNG, hydropower, coal power plants and wind power.7 In September 2014, India and China signed twelve agreements in Delhi, one of which pledged $20 billion to India’s infrastructure, including an upgrade of railways and the establishment of industrial parks in Gujarat and Maharashtra.8 India is a difficult market for China to operate in, not only due to territorial disputes between the two countries and China’s close relationship with Pakistan, but also for more practical reasons. Pakistan acts as a geographical obstacle for India’s access to Afghanistan and Central Asia, which has led to an Indian surge in Iran to try to open up the port at Chabahar to provide India with a way into Central Asia and Afghanistan that circumvents Pakistan. The SREB seeks to strengthen infrastructure investment ties between India and China. Infrastructure investment and connectivity has now become the dominant narrative in China’s foreign economic policy under the heading of the BRI. It is likely that all China’s international economic relations will gradually be subsumed under the BRI, with every deal further indicating its projected success. The SREB, and the CPEC in particular, represent new regional umbrella terms within the BRI that merge both existing and new connectivity projects. These include: investing in energy, telecommunications, mining and manufacturing facilities; constructing roads, railroads, airports, ports, and associated infrastructure, such as tunnels; establishing special economic or free trade zones and currency swaps; and harmonising or simplifying customs regulations and improving the ease of doing business.

Energy Development of oil and gas fields has traditionally been an important way for China to access resources, particularly in Central Asia. Reflecting one view of this wealth, in 2010, General Liu Yazhou of the People’s Liberation Army stated that Central Asia is ‘the thickest piece of cake

6 Eltaf Najafizada, ‘China Lays New Brick in Silk Road with First Afghan Rail Freight’, Bloomberg, 11 September 2016. Reflecting some of the security issues highlighted later in this paper, it was not clear that the train had been allowed to make its return journey. 7 BBC News, ‘China’s Xi Jinping Agrees $46bn Superhighway to Pakistan’, 20 April 2015. 8 BBC News, ‘China’s Xi Jinping Signs Landmark Deals on India Visit’, 18 September 2014.

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given to the modern Chinese by the heavens’.9 A 2013 report, citing a source in the oil and gas sector, said that the share that Chinese companies held in Kazakhstan’s oil sector exceeded 40 per cent.10 However, analysts such as Konstantin Syroezhkin have estimated this at a more conservative 25–27 per cent.11 In 2013 the China National Petroleum Corporation (CNPC), Total and Tethys Petroleum finalised an agreement to develop the Bokhtar gas fields in Tajikistan, although this project has since seen substantial challenges.12 In Turkmenistan, CNPC has been able to undertake deals and projects that are inaccessible to other outsiders. CNPC is the only company permitted an onshore production sharing agreement (whereby CNPC owns a part of the gas field it is exploiting, which no other foreign company has been allowed to do in Turkmenistan) in the Bagtyyarlyk field. CNPC is also involved in purchasing gas from other Turkmenistan fields, and is helping develop the supergiant Galkynysh natural gas field, which has been described as the world’s second-largest gas field. The inauguration of the first processing plant associated with the field was attended by both President Xi and Turkmenistan’s President Gurbanguly Berdymukhamedov in May 2013.13 Apart from Central Asia, China has also been an investor in Afghanistan’s oil fields. In 2011, CNPC partnered with Afghan company Watan Oil and Gas and secured the rights to three oil blocks in the Amu Darya Basin in northwest Afghanistan. The SREB and the CPEC seek to continue these trends, particularly in upstream operations. On Xi’s Central Asian tour in September 2013, CNPC struck a deal to purchase an 8.33 per cent stake in Kazakhstan’s giant Kashagan oil project for $5 billion.14 CNPC had sought to enter the same consortium in 2003 when BG Group departed, but Kazakh SOE KazMunaiGas used its right of first refusal to block the attempt. This may in itself demonstrate a turnaround in Kazakh thinking on the benefits of Chinese investment. China’s purchase of a stake in Kashagan was somewhat curious given the huge delays and technical problems the project has

Edward Wong, ‘China Quietly Extends its Footprints Deep into Central Asia’, New York Times, 3 January 2011. 10 Forbes, ‘Kazakh Oil Will Monitor China’, 8 January 2013. 11 Konstantin Syroezhkin, ‘China’s Presence in the Energy Sector of Central Asia’, Central Asia and the Caucasus, 2012. 12 Total, ‘Total Finalizes the Acquisition of 33,335% Interest in the Bokhtar PSC Area in Tajikistan’, 18 June 2013. 13 CNPC, ‘CNPC Completes First-Phase Construction of Galkynysh Gas Field’, 6 September 2013. 14 Mariya Gordeyeva, ‘China Buys Into Giant Kazakh Oilfield for $5 Billion’, Reuters, 7 September 2013. 9

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The Plan: Infrastructure and Integration

experienced, which has greatly increased the cost to consortium members.15 One oil and gas executive told the authors in Astana in September 2014 that ‘usually the Chinese are active in small and medium-size enterprises, but Kashagan was the first where they participated in a big multinational consortium’.16 This provides CNPC with an opportunity to test out the experience of working within a large multinational consortium project, reflected in reports from those working near the project who mentioned that CNPC participants are largely observers in the decision-making processes. Russia, although at first cautious towards the BRI, has since pledged its support and struck deals with China on investment in energy projects. In April 2016, Russia’s Yamal LNG project, run by Novatek, signed loan agreements with China’s EximBank and CDB worth $12.1 billion. This was particularly important given that both Novatek and its major shareholder, Gennady Timchenko, have been subject to Western sanctions since Russia’s intervention in Ukraine, which has seriously hindered the project’s ability to raise finance. In September 2013, around the time of the SREB announcement, CNPC purchased a 20 per cent stake in the Yamal project, and interestingly, in January 2016, China’s Silk Road Fund, a state-owned investment fund created for BRI projects (discussed in greater detail in Chapter V), purchased a 9.9 per cent stake in the Yamal project.17 Building the infrastructure to transport oil and gas back to China has also historically been a feature of Chinese investment in the SREB and CPEC countries. The Kazakhstan–China oil pipeline has been in operation since 2005, one of CNPC’s first major foreign forays into Central Asian energy, and one that proved so successful that years later the company was able to make a substantial investment in Turkmenistan, helping the country diversify its energy supply away from Russia. It also provided Turkmenistan with a new degree of control over its gas sales that had previously been bonded to Gazprom and Russia, as they owned the only infrastructure that existed to extract gas from Turkmenistan. Gazprom purchased Turkmen gas and resold it to European customers at a substantial mark-up, something that was a longstanding bone of contention between Turkmenistan and Russia. China’s entry into Turkmenistan’s hydrocarbon industry ended the Russian monopoly, although to some degree simply replaced it with a Chinese monopoly. Turkmenistan now has three Jack Farchy, ‘Leaking Pipelines to Add up to $4bn in Costs to Kashagan Oil Project’, Financial Times, 10 October 2014. 16 Authors’ interview with oil and gas executive, Astana, Kazakhstan, September 2014. 17 Vladimir Soldatkin and Olesya Astakhova, ‘Russia’s Yamal LNG Gets Round Sanctions with $12 bln Chinese Loan Deal’, Reuters, 29 April 2016. 15

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China’s Eurasian Pivot

operational gas pipelines running to Xinjiang through Uzbekistan and Kazakhstan, which CNPC helped to construct between 2009 and 2013. For China, it is not always simply a case of extracting resources and sending them home. China also invests in the downstream sector, building oil refineries. In 2009 Sinopec Engineering won a tender to reconstruct the Atyrau Oil Refinery in Kazakhstan, with China’s EximBank agreeing to loan more than $1.1 billion to fund the project.18 PetroKazakhstan manages the oil refinery at Shymkent in the South Kazakhstan Region, and in 2011 agreed to modernise and upgrade the refinery.19 Chinese-financed refineries were installed in Kara-Balta and Tokmok in Kyrgyzstan. Dongying Heli Investment and Development owns 90 per cent of the oil refinery that Chinese workers built in Dungara, Tajikistan.20 Petrol stations run by Chinese oil and gas company Sinopec (China Petroleum and Chemical Corporation) can already be found in Kazakhstan, and the Dangara oil refinery will supply Tajikistan’s domestic needs. There has been discussion of China building a refinery in north Afghanistan, although there is little evidence of this actually taking place, and individuals close to CNPC say the company is not currently building new Afghan energy infrastructure.21 This helps to reduce Central Asian dependence on Russia for refined oil products, altering the regional balance. This energy infrastructure continues as a BRI priority. In 2013, China signed an intergovernmental agreement with Uzbekistan, Tajikistan and Kyrgyzstan to construct a fourth gas pipeline, Line D, from Turkmenistan, which broke ground in 2014.22 However, it is unclear whether this project will now go ahead, as Chinese economic growth – and increases in the domestic demand for gas in China – have slowed.23 Reports from Uzbekistan indicated it was facing technical difficulties,24 while in May 2016 Kyrgyz Economy Minister Arzybek Kozhoshev said that the project had been postponed due to ongoing discussions with Beijing.25 Apart

Robin Paxton, ‘China Lends $1.1 bln for Kazakh Refinery Upgrade’, Reuters, 6 June 2012. 19 Prime Minister of Kazakhstan official website, ‘The Prime Minister of Kazakhstan Discussed the Issue of the Fuel Market with the Shymkent Oil Refinery’, 23 August 2016. 20 Chris Rickleton, ‘China’s Energy Footprint in Central Asia’, China Dialogue, 25 July 2014. 21 Authors’ interview with individuals close to CNPC, Beijing, November 2016. 22 Son Yen Ling, ‘Fourth Link of Central Asia-China Gas Pipeline to Start Construction This Year’, S&P Global, 10 March 2014. 23 Danila Bochkarev, ‘Turkmenistan Under Pressure to Adapt to New Market Reality’, Elektor Magazine, 7 September 2016. 24 Casey Michel, ‘Line D of the Central Asia-China Gas Pipeline Delayed’, The Diplomat, 31 May 2016. 18

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The Plan: Infrastructure and Integration

from transporting gas from Turkmenistan to China, CNPC also started to explore building ancillary infrastructure to sell some of the gas regionally in the BRI countries.26 Yet, aware of local sensitivities, some on the ground spoke of how China would not build such ‘spurs’ in Tajikistan so as to avoid conflict with Uzbekistan,27 which is keen to maintain a monopoly over gas supplies to Tajikistan. In May 2014 China struck a historic deal with Russia to build the Power of Siberia pipeline from eastern Siberia to northeast China.28 Although there have been subsequent tensions about terms and conditions, and the details of the plan are considered a state secret between the two countries, the project still seems to be in progress. Russia may struggle to make the project economically viable, due to a drop in oil prices and Western sanctions, but CNPC Vice-President Wenrong Xu said in October 2016 that the pipeline should be operational by 2020 at the latest.29 Investment in domestic energy supply has also been a Chinese priority in the past. In 2006, Tebian Electric Apparatus (TBEA) agreed to build a 90-kilometre power line between Dangara and Kulab in Tajikistan and a 350-kilometre north-to-south power line through the country. The latter project was completed with a $267-million bank loan from EximBank.30 In 2012, TBEA and the National Electric Grid of Kyrgyzstan signed an agreement to construct a power line that would enable Kyrgyzstan to achieve a degree of electricity independence. China provided all the financing and TBEA built the line, which was completed in August 2015.31 In Uzbekistan, Chinese research institutions signed agreements with their Uzbek counterparts as early as 1996, and they subsequently focused on jointly developing solar furnaces and solar technology.32 In August 2011, the Xinjiang Garson Sun Wind Power Technology Company opened an office in Uzbekistan, while the Holley Tatyana Kudryavtseva, ‘Construction of Kyrgyzstan–China Gas Pipeline Postponed for Indefinite Period’, 24 News Agency, 25 May 2016. 26 Author conversations in Astana, Kazakhstan, in 2012. 27 Author conversations with Chinese businessmen in Dushanbe, Tajikistan, quoting conversations with local diplomats. 28 Elizabeth Wishnick, ‘The “Power of Siberia”: No Longer a Pipe Dream’, PONARS Eurasia Policy Memo No. 332, August 2014. 29 Ria Novosti, ‘The Gas Pipeline “Power of Siberia” Can Be Operational Before 2020’, 4 October 2016. 30 Nargis Kassenova, ‘China as an Emerging Donor in Tajikistan and Kyrgyzstan’, Russia/NIS Center, January 2009, , accessed 5 December 2016. 31 Catherine Putz, ‘Kyrgyzstan Declares Energy Independence’, The Diplomat, 1 September 2015. 32 Academy of Sciences, Republic of Uzbekistan, ‘International Scientific and Technical Cooperation’. 25

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China’s Eurasian Pivot

Group, a Chinese pharmaceutical and electricity infrastructure firm from Hangzhou, also have agreed to work with Uzbek partners to upgrade the national gas metering system.33 There are a number of facets to these projects. They show the importance of energy infrastructure, essential to develop the countries and improve regional connectivity, and provide an excellent way for Chinese companies to ‘Go Out’ into the world. They also have a real beneficial effect in terms of improving these countries’ domestic infrastructure. Investment subsequent to the SREB and CPEC announcements demonstrate a commitment to continuing this form of investment in domestic infrastructure. In September 2013, Kyrgyzstan signed a $386-million agreement with TBEA to upgrade Bishkek Thermal Power Plant.34 In 2014, Tajikistan inaugurated the first phase of Dushanbe No. 2 thermal power plant.35 Towering over downtown Dushanbe, the building may be an eyesore, but it is a game-changer in a city that was accustomed to rolling blackouts during the winter when electricity was in short supply. Pakistan in particular will benefit from Chinese investment in its energy infrastructure and Prime Minister Nawaz Sharif has recognised the centrality of improving electricity and energy infrastructure in efforts to lift the country out of poverty. Of China’s $46-billion investment in the CPEC, $35 billion has been earmarked for energy, and this will include private consortia working to build domestic energy infrastructure.36 Renewable energy projects are part of this, but one of the key projects is the development of the Gwadar–Nawabshah LNG Terminal and a network of LNG pipelines. The aim was for this to eventually link to a pipeline in Iran, but this has already proven challenging for China. After Pakistan struggled to raise its agreed 15 per cent contribution of funds towards the $2-billion project, instead supposedly spending the money on a separate transport infrastructure project, China agreed to finance the whole project.37 Furthermore, although Pakistan’s National Economic Council approved the project in September 2016, it took too long to make its decision. One media report said that because of this delay the government of Pakistan failed to get the terminal and pipeline project Raffaello Pantucci and Alexandros Petersen, ‘Uzbekistan’s Balancing Act with China: A View from the Ground’, China Brief (Vol. 12, No. 14, July 2012). 34 Maria Levina, ‘China Helps Upgrade Bishkek Thermal Power Plant’, Times of Central Asia, 23 September 2013. 35 Trend News Agency, ‘Tajikistan and China’s TBEA Discuss Possibility of Accelerating Construction of Dushanbe-2 HPP’, 21 January 2013. 36 Deloitte, ‘How Will CPEC Boost Pakistan Economy?’, Deloitte, 2016; Ahmad Rashid Malik, ‘A Miracle on the Indus River?’, The Diplomat, 7 December 2015. 37 Zafar Bhutta, ‘Chinese Offer to Finance Whole $2b LNG Project’, Express Tribune, 14 May 2016. 33

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The Plan: Infrastructure and Integration

approved as an official CPEC project, depriving the government of advantages such as good loan terms from China.38 The economic viability of certain SREB and CPEC projects will be discussed later in this paper, but the importance of energy to the CPEC is illustrated by the fact that around $33 billion of the $46 billion announced for the project is aimed at energy infrastructure.39 The large financial contributions to these projects highlight the importance of energy, in particular, in the CPEC and SREB. However, they fail to tell the entire story of the vision and its impact on the ground. The narrative that China’s energy interests through the BRI are solely focused on getting resources back to China misses the fact that the infrastructure that is being built has the potential to be transformative on the countries along the routes. Not only does it open new energy markets to them through re-wiring the region’s energy infrastructure so that it heads to China, but it can also improve their domestic capacity potentially helping their economies in the longer run.

Connectivity Railways have also been a key feature of the SREB and the CPEC. In the first half of 2015 China expressed interest in investing $6 billion through bank loans into the construction of a high-speed railway from Moscow to Kazan.40 An agreement was reached in June 2016 to produce the trains at a plant in Russia,41 and in November 2016 German investors offered to put $2.7 billion towards the project.42 This comes at a particularly helpful time for Russia, which is struggling to finance such projects. The German co-investment is also useful for Russia, demonstrating that Russia can still do business with Western European companies even if their governments are using economic sanctions as political protest against Russian foreign policy. Moreover, this European co-investment is useful for China as a means of highlighting the ‘inclusive’ nature of BRI projects, rather than acting purely in Chinese interests. The aim is for it to be extended into a Beijing–Moscow high-speed link, a project that will both help connectivity

Khalid Mustafa, ‘Gwadar-Nawabshah LNG Pipeline Fails to Get Status of CPEC Project’, International News, 6 October 2016. 39 Ahmad Rashid Malik, ‘A Miracle on the Indus River?’, The Diplomat, 7 December 2015 40 Eva Grey, ‘Moscow-Kazan Rail Project Advances Hopes for Eurasian Connectivity’, Railway Technology, 21 November 2016. 41 Ibid. 42 RT, ‘German Consortium to Invest almost €3bn in Russian High-speed Railway’, 9 November 2016. 38

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China’s Eurasian Pivot

and provide an opportunity for Beijing to export its high-speed train model.43 The Angren–Pap railway in eastern Uzbekistan, a direct link between Tashkent and the Fergana Valley, began construction in July 2013. It was funded by the government of Uzbekistan and the World Bank; in September 2013 China’s EximBank agreed to fund the construction of the 19-kilometre Qamchiq Tunnel as part of the railway infrastructure.44 Apart from upgrading the Karakoram Highway between Xinjiang and GilgitBaltistan in Pakistan and opening up the rail line over the Khunjerab Pass, the Karachi–Peshawar main rail line will be upgraded, as well as the lines between Khotri and Attock, and separately Larkana and Dera Ghazi Khan. Additionally, an Orange Line is to be added to the Lahore metro system in a $1.6-billion project considered under the auspices of the CPEC. In February 2016, the first container train was launched on the China– Kazakhstan–Turkmenistan–Iran railway line, reducing the journey through Kazakhstan and Turkmenistan to fourteen days, compared with 45 by sea.45 Efficient roads are also an important component of the SREB and the CPEC, with many Chinese investments not only building new roads but also looking to upgrade and improve inadequate existing ones. Part of the $3-billion package of deals President Xi agreed with Kyrgyzstan in 2013 included agreements on the construction of the north–south highway through the country. The upgrade of the Karakoram Highway is a central pillar of the CPEC, connecting Kashgar in Xinjiang with Abbottabad and then Hasan Abdal in Pakistan. Once again, Chinese-sponsored rail and road projects are not new to the region. In 2006, EximBank agreed to loan Tajikistan $281 million to reconstruct a 354-kilometre highway between Dushanbe and Chanak, on the border with Uzbekistan, to be carried out by the China Road and Bridge Corporation.46 In 2006 China invested $7.5 million in Kyrgyzstan in the construction of the China–Kyrgyzstan highway connecting Kashgar to Osh.47 China has long suggested constructing a China–Kyrgyzstan–Uzbekistan rail line, connecting Kashgar in Xinjiang to Andijan in Uzbekistan via Naryn and Osh, but Kyrgyzstan seems to Kira Egorova, ‘Russia to Build New High-Speed Railway with Funding from Beijing’, Russia Beyond the Headlines, 1 April 2015. 44 Forbes, ‘China Will Invest $ 455 Million in the Construction of a Tunnel Through the Pass Kamchik in Uzbekistan’, 10 September 2013. 45 Najmeh Bozorgmehr, ‘First Freight Trains from China Arrive in Tehran’, Financial Times, 9 May 2016. 46 Nargis Kassenova, China as an Emerging Donor in Tajikistan and Kyrgystan, (Paris: Russia/NIS Center/Ifri, 2009). 47 Xinhua, ‘Highway Linking China, Kirgizstan, Uzbekistan Expected to Be in Service in 2008’, 2 September 2006. 43

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The Plan: Infrastructure and Integration

vacillate between opposition and support for the project. Moreover, some of the SREB and CPEC projects appear to be a repackaging of historical agreements. Chinese companies have been active in upgrading the Karakoram Highway for some time, and plans for transport and trade corridors connecting Xinjiang to Gwadar Port are more than ten years old.48 Suffice to say, Chinese companies are repaving and laying the tracks for new silk roads across Eurasia, both refurbishing old infrastructure and building new routes. All of these will not only improve the prospects for regional connectivity, but will ultimately provide Xinjiang with a wellconnected neighbourhood to do trade with and through.

Trade and Business However, for this connectivity to provide benefits to local populations and create a more prosperous environment, more local employment needs to be generated. One approach that China is pushing is to establish special economic zones (SEZs) along the SREB to encourage domestic production, foreign investment and trade. This has been a key component of the CPEC. In total 29 zones are to be established in Pakistan under the auspices of the CPEC, including in Khyber Pakhtunkhwa, Punjab, Balochistan, Sindh, Gilgit-Baltistan and Islamabad Capital Territory.49 These zones would focus on mining, food-processing, manufacturing, textiles, and marble and granite, and again, some indicate expansion of existing industrial zones rather than establishing new ones. For example, one industrial zone in Hattar in Khyber Pakhtunkhwa would be expanded, and the idea of Marble City, an SEZ in Karachi, seems to have been promoted by the government of Pakistan since 2011.50 There are approximately 651 joint ventures in Uzbekistan involving Chinese capital,51 and China has already invested in the three existing SEZs in Uzbekistan. Chinese companies have also invested in the textiles industry in the Dzhizak SEZ, established in 2013.52 This is of particular importance to Uzbekistan, as it is part of the national economic strategy to invest in the production of clothing as opposed to exporting cotton. In 2013 Chinese pharmaceutical company Kunming Pharmaceutical agreed to invest $7 million in a production facility in the Angren SEZ, established Andrew Small, ‘Two Birds, One $46 Billion Stone’, Indian Express, 22 April 2015. Dawn, ‘Gwadar to Get First SEZ under CPEC’, 28 January 2016. 50 Kashif Hussain, ‘Sindh Government Approves Marble City’, Express Tribune, 4 February 2011. 51 Sputnik News, ‘Uzbekistan and China Have Signed Documents of Strategic Partnership’, 22 June 2016. 52 Ministry of Economic Development of the Russian Federation, ‘Ubekistan. Information about the Free (Special) Economic Zones’. 48 49

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in 2012.53 In 2014, Chinese telecommunications company UzHongKong opened a new enterprise in the Navoi SEZ, created in 2008, to produce mobile telephones, computers, tablets and televisions. Russia in particular has been looking to develop infrastructure in its far east and has been keen to attract investment from its eastern neighbour. China has endorsed this policy, as Chinese Vice Premier Wang Yang said at the Eastern Economic Forum in Vladivostok in September 2015: ‘The Far East development strategy coincides with China’s strategy of north-east rebirth’.54 Focusing on agriculture, in 2015 China and Russia discussed setting up a joint Russian–Chinese agro-industrial investment fund and agricultural free-trade zone.55 In 2014, China’s Vice President Li Yuanchao proposed setting up a common economic zone in Russia’s far east,56 but Russia’s further development of business ties in the wake of Western sanctions has not been as quick or strong as Russia would have liked. In 2015, trade turnover between the two countries dropped by almost 28 per cent.57 One of the most well-known SEZ initiatives is at Khorgos, known as the International Centre for Boundary Cooperation, which lies on the border with Kazakhstan and China and was pitched as China’s first international free trade zone. It is also a transport hub for rail cargo between China and Europe, acting as a dry port. First opened in 2011, it does not seem to have been quite the commercial success story that was hoped. When RUSI researchers visited in 2012 it appeared empty,58 while subsequent visits by journalists and other researchers have shown little progress.59 With the Chinese side much more developed than that of Kazakhstan, it seems more a hub for Kazakh traders to buy cheap Chinese goods to sell in Kazakh markets. One Western visitor described it as, ‘less an international center for commercial and cultural exchange than a Chinese wholesale market flung out on the Central Asian steppes’.60 Port investment is also a strong component of the CPEC. The CPEC will run from China’s Kashgar to Pakistan’s Gwadar and Karachi Ports, with Gwadar in particular a focus of attention under the CPEC. Construction of 53

Ibid. Katya Golubkova, ‘China Backs Putin’s Idea of Developing Russia’s Far East’, Reuters, 5 September 2015. 55 Chuin-Wei Yap, ‘China, Russia Prepare $2 Billion Agricultural Investment Fund’, Wall Street Journal, 8 May 2015. 56 RT, ‘Russia, China May Create Common Economic Zone in Far East’, 24 May 2014. 57 Moscow Times, ‘Russian-Chinese Trade Plummets in 2015’, 13 January 2016. 58 Author visit in April 2012. 59 Moritz Rudolf, ‘China’s Silk Road Initiative is at Risk of Failure’, The Diplomat, 24 September 2015. 60 Wade Shepard, ‘An Inside Look at China and Kazakhstan’s “Absurd” Cross-Border Free Trade Zone’, Forbes, 26 July 2016. 54

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the Gwadar Port began in 2003, with technical and economic assistance from China. Control of the port formally passed to Chinese hands in 2013.61 India has invested in the Chabahar Port in Iran, which adds a competitive element to China’s investment in Gwadar. Journalist Shi Lancha indicated possible tension around this subject in June 2016, ‘Chabahar is just the tip of the iceberg of India’s geostrategic ambitions … Besides bypassing the overland blockage [by Pakistan], India also views its investment in Chabahar as a counterweight against Pakistan’s Gwadar Port, a Chinese-funded deep sea port 72 kilometres east of Chabahar’.62 This statement reflects some of the potential geopolitical perceptions along the CPEC as it blurs into the MSR, although it is worth pointing out that there is not much confidence that Chabahar will move forward soon and Chinese companies have already been exploring opportunities in the port, which either serves to illustrate the lack of confidence in Gwadar, Chinese over-reach, or a confidence that the region can support two more large new ports.63

Manufacturing and Production The SREB and the CPEC also cover regions where China can transfer excess production capacity. In part these initiatives will help to develop a much needed manufacturing base in some SREB and CPEC countries, but they are also about China’s domestic economic issues. Chinese investment in Tajikistan’s cement industry increased Tajik production of the material fivefold between 2013 and 2015, with the result that China’s domestic cement market is now oversupplied. The BRI gives Chinese producers explicit support to move excess capacity abroad. Again this has already been the case for a long time. As Dirk van der Kley noted, ‘the two main Chinese cement investors [in Tajikistan] began laying the groundwork for their projects by 2011, even though they both now brand their projects as “OBOR” [BRI]’.64 Huaxin, which signed an agreement to build a 1.2-million tonne per annum (mta) cement plant near Dushanbe in 2011 and opened another 1.2 mta plant in Sughd in March 2016, is the most prominent investor in China.65 Damon Wake and Guillaume Lavallee, ‘China’s Xi Jinping Calls this $46 Billion China-Pakistan Corridor Project a “Historic Development Opportunity”’, Business Insider UK, 22 April 2015. 62 Shi Lancha, ‘In Iran’s Chabahar, India Seeks Leverage Point over Pakistan, China’, Global Times, 5 June 2016. 63 Press TV, ‘Chabahar Port to Harbor Chinese Industrial Town’, 27 April 2016. 64 Dirk van der Kley, ‘China Shifts Polluting Cement to Tajikistan’, The Third Pole, 9 August 2016. 65 Hubei China, ‘Huaxin Cement’s Second Production Line in Tajikistan Put into Operation’, 25 March 2016. 61

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Cement plants, as with other heavy industry infrastructure in the region in which China invests, can be a source of conflict with the local population. In 2012 protestors rallied outside the Aravan Cement Plant in the Osh region in southern Kyrgyzstan, protesting about the environmental damage they believed the plant was causing. This is a question that is often enunciated around BRI projects be they CPEC, SREB or others, with people hearing stories of polluted Chinese cities and wondering what this means for the companies undertaking investments and projects in their country. In the Kyrgyz case in particular, this was also mixed with a frustration that locals did not feel they were receiving the financial benefit from China’s operations. Apart from demanding that cleaning filters be installed, they also requested that funds be allocated to the local budget so that infrastructure can be improved, and that the plant owners sell cement to residents at a discounted price.66 There is also great potential for China to build up more diverse and less damaging manufacturing and production bases, and there have been signs of this in the agricultural sector. As manufacturing has become more expensive in China as labour costs rise, China may want to look abroad, and Kyrgyzstan has offered its territory for this potential development. When China’s Foreign Minister Wang Yi visited Kyrgyzstan in May 2016, economic officials in Bishkek suggested that Beijing relocate manufacturing operations from China to Kyrgyzstan.67 It is unclear how seriously China has taken this suggestion, but significant investment would certainly be needed to restore and expand Kyrgyzstan’s ailing and ineffective industrial base. The broader concept, however, is something that IFIs like the World Bank have advocated.68 The importance of ensuring local benefit from Chinese investment is a key issue facing China, and is discussed in greater detail later in this paper.

Integration The National Development and Reform Commission’s (NDRC) Action Plan says that the BRI promotes ‘practical cooperation in all fields, and works to build a community of shared interests, destiny and responsibility featuring mutual political trust, economic integration and cultural Global Cement, ‘Update on the Cement Industry in Central Asia’, 27 April 2016. Anna Lelik, ‘Kyrgyzstan: Bishkek Hopes Chinese Investment Can Produce Industrial Breakthrough’, Eurasianet, 22 June 2016. 68 Justin Yifu Lin, ‘Uzbekistan: New Strategies and Opportunities for Structural Transformation’, public presentation, 7 July 2011, PowerPoint in possession of authors. 66 67

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inclusiveness’.69 Economic integration is part of the BRI’s rationale, as new infrastructure that traverses multiple countries or improves communications means there will be greater connectivity. However, how far economic integration will go, or is feasible, is not yet clear. An example of this is an agreement between President Putin and President Xi to sign a joint statement in May 2015 on tying development of the Eurasian Economic Union (EEU; Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan) and the SREB.70 Previously, Moscow had been relatively quiet on its assessment of China’s SREB proposal, partly because it was unclear what it actually meant for Russia and also as it was likely concerned about what this might mean for Russia’s influence in Central Asia. However, Putin’s statement was a very public endorsement by Moscow, not necessarily of the EEU as an organisation, but of China’s initiative. Russia’s decision to formally link its common economic space with the SREB not only allows Russia to overtly point to a partnership with China at a time that economic and political ties with Western countries are tense, it is also an acknowledgement by Russia that, although the exact details of the SREB project are not entirely clear, and Russia is aware that this will further legitimise China’s growing economic influence in Central Asia in contrast to its own, it is better for Russia to be a part of it than outside it. As routes through Afghanistan and Iran show,71 Russia is not necessarily an integral part of the SREB vision from China to Europe, given there are faster routes through Central Asia and the Caucasus. Russia is no doubt concerned that the rail lines through Central Asia that China hopes to expand could threaten the relevance of the Trans-Siberian railway, so by endorsing the project Russia hopes to secure its own interests. This does indicate, however, that real economic ‘integration’ as such is not the aim as much as endorsement of and subsequent cooperation on economic projects. For example, the EEU and the SREB are very different in concept and objective. First, the EEU integration project has not yet reached its full potential. Without Ukraine as a member, the size of Russia’s economy causes an imbalance in its favour. The deterioration of external economic conditions, sanctions against Russia, a drop in oil prices, and devaluation of member states’ currencies, have affected the

69

NDRC, People’s Republic of China, Ministry of Foreign Affairs, and Ministry of Commerce of the People’s Republic of China, ‘Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road’, March 2015. 70 RT, ‘Russia, China Agree to Integrate Eurasian Union, Silk Road, Sign Deals’, 8 May 2015. 71 Xinhua, ‘First Cargo Train from China Arrives in N. Afghan Port’, 7 September 2016.

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economic health of all EEU members. Trade between members actually dropped between 2013 and 2014,72 and fell by a further 26 per cent in 2015 after the EEU came into force.73 Furthermore, there is not always consensus on external economic measures, showing that national interests at times eclipse a common economic objective. For example, when Russia placed counter-sanctions on European and US agricultural producers, the rest of the EEU’s members did not follow. Although this in itself is not necessarily an issue for China, it demonstrates that true integration with the EEU is not clear cut, and, in fact, merely strengthens China’s approach of engaging at both bilateral and multilateral levels. Although both the EEU and the SREB theoretically aim to advance trade, their methods are very different. The EEU abolished tariffs between its members, and allows for the free flow of goods, capital and labour. Therefore, the plan is for this to be one large market with agreed external tariffs for non-members. The SREB is not an economic integration project in the same way, and is more focused on investment in infrastructure development. Li Lifan, deputy secretary-general of the Centre for SCO Studies at the Shanghai Academy of Social Sciences, has noted that ‘the possibilities of cooperation between the EEU and OBOR [BRI] are limited by their different emphasis on rule-making’.74 He observes that the EEU is very much focused on detailed and technical economic regulation, such as customer liberalisation and tariffs. The BRI’s aim is not to have such a degree of technical integration but more ‘mutually beneficial’ cooperative investments. The authors found evidence of this in a visit to Moscow in 2014, when officials at the EEU Secretariat provided detailed demonstrations of the numbers of rules and regulations the EEU imposed on members, while, in Beijing, no similar bureaucratic entity exists for the BRI, which is a ‘vision’ or ‘project’ rather than an organisation. A good example of the challenge that integration between the EEU and the SREB presents is Kyrgyzstan, which became a full member of the EEU in August 2015. Some may question the economic rationale for bringing Kyrgyzstan into the organisation given its economic underdevelopment and high dependence on aid. Then Prime Minister Djoomart Otorbaev said in 2015 that Kyrgyzstan had ‘no alternative’ but to

Eurasian Economic Commission, ‘Eurasian Economic Integration: Facts and Figures’, 2015 , accessed 5 December 2016. 73 International Crisis Group, ‘The Eurasian Economic Union: Power, Politics and Trade’, Europe and Central Asia Report No. 240, 20 July 2016. 74 Li Lifan, ‘The Challenges Facing Russian-Chinese Efforts to “Dock” the Eurasian Economic Union (EEU) and One Belt, One Road (OBOR)’, Russian Analytical Digest (No. 183, 3 May 2016), p. 8. 72

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join the EEU, given that important trade partners were already part of it, as well as suspected pressure from Russia.75 However, a very important economic partner at the time was China, given that approximately a third of Kyrgyzstan’s GDP came from the re-export of Chinese goods through Dordoi Bazaar in Bishkek and other sites. With external tariffs mandatory for EEU members, this would deter re-exports through Kyrgyzstan as they would be less profitable. There has subsequently been a decline of 29 per cent in imports from China from $1.45 billion in 2014 to $1.03 billion in 2015.76 This has caused great concern among traders in the markets, who said even before Kyrgyzstan formally joined the EEU that trade was already dropping at the prospect of Kyrgyzstan becoming a member (though numerous other factors were likely also at play behind the failing Kyrgyz economy – for example, the drop in Chinese trade as the routes to Kazakhstan became more streamlined, as well as the difficulties of getting goods across the Kyrgyz–Uzbek border).77 This shows the potential clash between the two projects, although ultimately the loser in this context is Kyrgyzstan in the form of lost trade. The Chinese goods will instead enter the EEU more efficiently through Kazakhstan, or go into Pakistan, while Kyrgyzstan is suddenly deprived of one of the main sources of its GDP. Russia is not the only one trying to connect its strategy for domestic economic revival to China’s. In September 2016, President Nursultan Nazarbayev explicitly linked his national vision ‘Nurly zhol’ (bright road) to China’s when he told a meeting of regional governors in Kazakhstan that ‘Nurly zhol is a part of the New Silk Road Economic Belt’.78 Rather than indications of genuine ‘system-to-system’ integration, this statement is more a rhetorical tool to endorse the project. There is a risk that national projects will get subsumed into the BRI, softly but significantly strengthening China’s influence, while not necessarily delivering on the local development programme. For example, President Xi described the Uzbek cities of Bukhara and Samarkand as ‘pearls … along the ancient Silk Road’.79 China has also begun to bring BRI rhetoric into the SCO. In Pakistan, the CPEC has become Pakistan’s national economic strategy, transforming from a Chinese project into a vision for Pakistani economic Ayshet Andruhaeva, ‘Skeptics Continue to Calculate the Risk of the EAEC’, Radio Azattyk, 17 January 2015. 76 Lelik, ‘Kyrgyzstan: Bishkek Hopes Chinese Investment Can Produce Industrial Breakthrough’. 77 Authors’ interview with Chinese trader, Kara Suu Bazaar, Osh, Kyrgystan, September 2014. 78 Kazinform, ‘Nazarbayev: Nurly Zhol is a Part of New Silk Road Economic Belt’, 17 September 2016. 79 Xinhua, ‘Xi’s Speech Bolsters Confidence in Development of Uzbekistan and Beyond’, 23 June 2016. 75

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rejuvenation. In a speech in August 2016, Prime Minister Nawaz Sharif described it as a ‘game-changer’ for the country and region.80 On the other side of the equation, every effort by China to try to create an SCO free trade area has been met with opposition and blockage – in particular from Russia and Uzbekistan which see it as a step too far in Chinese economic influence in the region.

80

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SamaaTV, ‘CPEC Game-Changer for Pakistan, Entire Region: PM’, 29 August 2016.

IV. PERCEPTION PROBLEMS OF THE BELT AND ROAD INITIATIVE FROM CENTRAL ASIA

A key objective of the research for this paper was to understand the rationale from Beijing behind the SREB and the CPEC. Another important objective was to understand the perceptions of the regional countries along the SREB and the CPEC, in particular with regard to China’s intentions and the impact they will have. Field trips to China and nine countries, Russia, Kazakhstan, Kyrgyzstan, Uzbekistan, Turkmenistan, Tajikistan, Afghanistan, Pakistan, India, as well as desk-based research, provided information gathered to support the analysis. This information was then supplemented by presentations and discussions at the Shanghai Conference at the end of the first year of research and the three subsequent workshops held in Almaty in Kazakhstan, Tashkent in Uzbekistan and New Delhi in India in the second year. During the research trips, the RUSI team spoke to as wide a range of people as possible on the political, social, economic and security aspects of the SREB and the CPEC. This included: academics; government officials, particularly in the Ministry of Foreign Affairs and ministries responsible for economic development and infrastructure; economists; business people; representatives from the Chinese embassies in Central Asian countries; foreign diplomats; and market traders. The majority of those interviewed expressed enthusiasm at the prospect of greater economic cooperation with, and investment from, China. Despite the fact that the substance of the project was not entirely clear, this mattered little to some. For example, one representative from the Ministry of Foreign Affairs in Astana, Kazakhstan, said, ‘the SREB is a platform, but not everything has been decided yet. Kazakhstan’s Ministry of Foreign Affairs completely supports the project’.1

1

Authors’ interview with representative from the Ministry of Foreign Affairs of Kazakhstan, Almaty, Kazakhstan, September 2014.

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This enthusiasm was particularly evident in Pakistan, where many in Islamabad view the CPEC as a panacea to all problems, including the national energy crisis, security problems, regional underdevelopment and challenges with separatist regions. It has helped elevate the already often hyperbolic Sino-Pak rhetoric – where leaders characterise the two countries as ‘iron brothers’ who are, together, ‘higher than mountains, deeper than sea and sweeter than honey’.2 The bar for the potential positive consequences has been set high, which may lead to disappointment if the projects do not deliver the societal change some leaders in Pakistan have ascribed them. Showing this emotion, one specialist, from a research institute specialising in China–Pakistan relations, said ‘the brotherly love of China-Pakistan relations is not just a metaphor’.3 Many spoken to were more critical, however, of the lack of detail about how the project titles translated into implementation and what this might mean for Chinese regional dominance. Part of this was simply down to the perception of insufficient engagement with what the BRI meant, after it had been announced. This has been particularly prevalent in India, though of course other strategic concerns also play a role. In 2015 India’s Foreign Secretary Subrahmanyam Jaishankar described the BRI as a Chinese ‘national initiative’.4 He said that if China wants a ‘larger buy in’ to this national initiative, then it needs to have ‘larger discussions and those haven’t happened’.5 During the project workshop in New Delhi in March 2016, one participant said, ‘if it [BRI] is in line with openness, it would have been better in consultation with the countries at the time’. Indian analysts, officials and foreign diplomats in New Delhi noted that India is suspicious of China’s desires to expand its influence in the Indian Ocean, particularly with the Maldives and Sri Lanka – two countries with ports that quite directly provide China with a potential manner of strategically encircling India in its own ocean. This is not a new narrative and draws on a long history of Sino–Indian tension. In 2004, US consulting firm Booz Allen Hamilton outlined the ‘string of pearls’ hypothesis, which posited that China would develop a series of civilian platforms, namely ports and docking facilities, which might later

The Nation, ‘CPEC to Help Pakistan Become Asian Tiger: Sun Weidong’, 22 May 2016. 3 Authors’ interview with specialist from the Pakistan-China Institute, Islamabad, Pakistan, April 2015. 4 International Institute for Strategic Studies, ‘India, the United States and China’, IISS-Fullerton Lecture by Subrahmanyam Jaishankar, 20 July 2015. 5 Tanvi Madan, ‘What India Thinks about China’s One Belt, One Road Initiative (But Doesn’t Explicitly Say)’, Brookings, 14 March 2016. 2

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be developed into military bases.6 These ‘pearls’ of influence were intended to focus on projecting maritime power in the Indian Ocean and included Chittagong in Bangladesh and Gwadar Port in Pakistan.7 China has denied that this is its intention, and claimed that the MSR is aimed at reinforcing the message that China is only interested in economic development and enhanced connectivity among the Indian Ocean littoral countries. However, for India, the CPEC, the SREB and the MSR are indistinguishable, and consequently when Indian analysts or officials are asked about the SREB specifically, they will often display concern and start to talk instead about the MSR. These South Asian dynamics are even more complicated when considering the CPEC. Security risks are increased for India as a result of this further strengthening of integration between China and Pakistan. In interviews and during the New Delhi workshop, concerns were repeatedly voiced over the CPEC, not only about the strategic objectives, but also about the CPEC’s likely transit through Pakistan-controlled Kashmir. This problem has also been seen in the media, where concerns have been reported about the route that will go through Gilgit-Baltistan, which borders Kashmir, causing friction in Pakistan and India.8 China’s Ministry of Foreign Affairs responded by saying that the CPEC does not alter China’s longstanding Kashmir policy, which states that the issue should be resolved between India and Pakistan. A Ministry of Foreign Affairs spokesperson said: ‘This issue is left-over from history between India and Pakistan. It needs to be resolved between India and Pakistan through consultation’.9 One former Indian diplomat at the New Delhi workshop said, ‘through the CPEC, China is stepping up interference in India-Pakistan differences in Kashmir … China’s Pakistan strategy will inevitably be a problem for India’.10 The Chinese government’s Action Plan has provided an outline of the five main objectives of the BRI: policy coordination; connectivity; unimpeded trade; financial cooperation; and enhancing the people-topeople bond through greater educational exchanges and information sharing.11 This does not in reality constitute a concrete plan, but instead 6

Juli A McDonald, Amy Donahue and Bethany Danyluk, Energy Futures Asia (McLean, VA: Booz Allen Hamilton, 2004). 7 Washington Times, ‘China Builds Up Strategic Sea Lanes’, 17 January 2005. 8 Raffaello Pantucci, ‘China-Pakistan: With Great Investment Comes Some Responsibility’, RUSI Newsbrief, July 2016. 9 Economic Times, ‘China-Pakistan Economic Corridor Will Not Affect China’s Stand on Kashmir: Beijing’, 31 August 2016. 10 Cited at New Delhi workshop, April 30, 2016. 11 NDRC, Ministry of Foreign Affairs and Ministry of Commerce of the People’s Republic of China, ‘Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road’, March 2015.

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the overriding objective of the BRI. Apart from the CPEC, it does not set out a blueprint for or list of specific projects that it seeks to implement. Although Beijing has promoted the project as a typically Chinese ‘win-win’ and ‘mutually beneficial’ proposal, promoting common development and prosperity for all, some were more suspicious of the potential geopolitical objectives behind the project.12 This is not necessarily in itself a problem. In reality China is flexible on what the SREB corridors will include. Seeking to encourage inclusion, which the Action Plan notes is part of the ‘Silk Road Spirit’, China does not wish to place limits on its vision. For example, the SREB may also encompass connectivity cooperation between Central Asia and the Caucasus, which does not necessarily have a direct link to China. Instead, it is likely that the vision will be made up of numerous individual or group infrastructure, trade, communications and transport projects that all fall under the BRI umbrella. China has emphasised how the projects should be ‘jointly built through consultation to meet the interests of all’, showing that it is open to suggestions.13 Moreover, as with many proposals from China, these projects form part of a long-term plan. As one Czech analyst stated, ‘China can take a lot more of a long-term view on such things compared to Westerners’.14 However, many interviewees felt that even this had not been explained, and not enough consultation had taken place. Some Chinese specialists echoed this criticism, including one voice that has been particularly prominent in advocating that China concentrates its foreign policy efforts more towards its western neighbours. At the Shanghai Conference, Professor Wang Jisi, author of China’s march west proposal (see Origins of the Belt and Road Initiative in Chapter I), noted that although the BRI represents a ‘grand design’, the current discussion is too broad and a more specific one is needed.15 The discussion at the conference also highlighted a potential explanation as to why the grand vision was not followed up with much detail in the short term. Not only is it part of China’s plan to be flexible and inclusive, preferring to promote the SREB and the CPEC through consultations with partners, but it is also indicative of the way Chinese bureaucracy works. Although senior Beijing policymakers may announce a grand foreign policy vision, such as the BRI, the implementation of such a vision is up to other players at the ministerial, regional and local levels. Various ministries have introduced plans supporting the BRI. Individual provinces have also begun to create their own plans. For example, Gansu province in northwest China has 12 13 14 15

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Ibid. Ibid. European expert at RUSI Shanghai Conference, 24 June 2015. Wang Jisi, presentation at RUSI Shanghai Conference, 24 June 2015.

Perception Problems of the Belt and Road Initiative from Central Asia

researched and submitted plans for proposed SREB projects, which include road construction, trade and technology.16 The cities of Shanghai, Xian, Qingdao and the provinces of Sichuan, Xinjiang, Fujian and Heilongjiang have also drafted local plans to outline where they fit into the SREB.17 In some cases, it is not entirely clear to what degree these plans fit within the BRI vision, rather they are attempts to pin local strategies and visions to the banner of the bigger project. Part of this is a means to make their project more relevant, but it can also be a very blunt way to attract more attention and investment from Beijing. Reflecting the high-profile nature of the BRI vision, almost every company, province, prefecture, think tank, university and other organisation in China has established a BRI programme or plan, while the NRDC, the central planning body, has issued numerous plans and initiatives to steer national investments and projects under the auspices of the BRI. The exact level of domestic investment that has been allocated towards the BRI is therefore hard to calculate. Given the lack of clarity around the broader vision it is equally difficult to know precisely which internal projects have been allocated as part of the BRI and how many are doing so merely as a way of attracting Beijing’s attention. Some Central Asian representatives at RUSI’s Shanghai Conference certainly shared suspicions about China’s ulterior strategic motives that may lie behind the BRI. Central Asian officials consistently talk about having a ‘multivector’ foreign policy, namely balancing Russia with other powers, such as China, the EU and the US, among others. Some countries in Central Asia are aware of the need to maintain this balance, despite the SREB. A source from the Ministry of Foreign Affairs in Tashkent said, ‘Uzbekistan is hedging. We should see how the Chinese project develops. We should use the flame of the dragon in our own interest, but [we] cannot be dependent on China’.18 Others spoken to in Kyrgyzstan and Tajikistan, who need foreign investment and debt finance more than some of their Central Asian neighbours, were much more enthusiastic. By far the most enthusiastic were those interviewed in Pakistan.

Xue Chaohua and Liu Xiangrui, ‘Gansu Set to Star in “Belt and Road” Plan’, China Daily, 13 April 2015. 17 Lingling Jiang and Nick Marro, ‘One Belt, One Road: What the Regional Plan Means for Foreign Companies’, US-China Business Council, 30 April 2015. 18 Authors’ interview with representative of Uzbekistan Ministry of Foreign Affairs, Tashkent, January 2016. 16

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Sinophobia An issue more unique to Central Asia than South Asia that emerged in conversations was the expression of regional ‘Sinophobia’ – fear of China. This emotive term captures the sentiment accurately, as it is in part a product of logical concerns about China’s potential overwhelming dominance, but also in part a result of a more irrational form of racism that is quite prevalent across the region between different peoples. Marlène Laruelle and Sébastien Peyrouse have examined Sinophobia in the region, particularly in Kyrgyzstan and Kazakhstan, where it is arguably most prevalent, although Tajikistan has also been affected.19 This fear has expressed itself in a number of ways. At times it has been through scaremongering, with rumours spreading in parts of Kazakhstan, Kyrgyzstan and Tajikistan that Chinese workers come to Central Asia with the aim of settling and marrying local women, or even that Chinese citizens sent to work on large infrastructure projects are actually convicts, leading to security risks.20 Laruelle and Peyrouse have noted that Sinophobia has often been an expression of the concern that increased Chinese migration will threaten the livelihoods of local workers. This is not a new phenomenon. In January 2007, the Kyrgyz government proposed a bill that would place quotas on foreign citizens working in wholesale and retail, aimed at limiting Chinese commercial activities. Although the bill was postponed indefinitely, it was supposedly suggested under pressure from organisations representing Kyrgyz entrepreneurs – the Dordoi association, representing sellers at Dordoi Bazaar, and a second association for traders at Kara Suu.21 As with most instances globally, fears about Chinese migration are not necessarily based on facts, but perceptions. In a study conducted between 2007 and 2012, migration expert Yelena Sadovskaya found that a lack of knowledge about China was one of the causes of these fears. Chinese workers may live and even settle in Central Asia, but Sadovskaya argues that the ‘impact of [the] Chinese labor force on Kazakhstan’s labor market was minimal’.22 Many of those migrating to Kazakhstan from China to 19

Marlène Laruelle and Sébastien Peyrouse, The Chinese Question in Central Asia: Domestic Order, Social Change and the Chinese Factor (London: Hurst, 2012). 20 Authors’ interview with oil and gas executive, Atyrau, Kazakhstan, September 2014; discussion with local Chinese businessman married to a Tajik woman, Dushanbe, 2014. In April 2012, when one of the authors visited and spoke to an official at the Chinese Embassy in Dushanbe the official could remember fewer than five marriages in the three years he had been posted there. 21 Marlène Laruelle and Sébastien Peyrouse, China as a Neighbor: Central Asian Perspectives and Strategies (Washington, DC and Stockholm: Central AsiaCaucasus Institute and Silk Road Studies Program, 2009). 22 Vladimir Prokopenko, ‘Chinese Migration to Kazakhstan – Threat or Myth?’, Tengri News, 26 September 2014.

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Perception Problems of the Belt and Road Initiative from Central Asia

settle and gain citizenship are ethnic Kazakhs, as well as other ethnic groups, such as Dungan (a term used in former Soviet Union territories to refer to a Muslim people of Chinese origin) and Uzbek, often coming from Xinjiang. Between 1993 and 2012, 96.8 per cent of those emigrating from China were ethnic Kazakhs.23 The majority of Han Chinese do not stay in Kazakhstan in order to gain permanent residence but for temporary work or trade.24 There are also fears that China is using commercial deals as a cover to take over Central Asian territory. While such territorial concerns are universal, they are felt more acutely by the younger countries of Central Asia and especially so when they share a border with a giant neighbour such as China. This has been a particular issue for Tajikistan and Kazakhstan, which has a relatively small population of approximately 17 million inhabiting a landmass the size of Western Europe. Land deals with Chinese agribusiness investors have often been unpopular to the point that they have been postponed, hindering China’s investment. In December 2009, Kazakhstan’s President Nazarbayev announced China’s interest in leasing 1 million hectares of land for agricultural production. This led to large protests in January 2010, with locals calling the deal a threat to national security and signifying Chinese expansionism.25 The government allegedly shelved the project, although unsubstantiated rumours emerged in February 2011 that a secret deal had been made.26 In April 2016 there were protests in cities across Kazakhstan about changes to the law that would allow foreigners to rent land for 25 years, as well as for land to be sold or leased at auction. Some of the protestors were explicit in their opposition to this law on the basis of it being aimed at Chinese investors.27 In 2012, Tajikistan agreed to lease 6,000 hectares of land to China. The deal stipulated that the Chinese investors would only be allowed to sell crops produced on the land to Tajik markets, but this still caused suspicion that the Tajik government was selling Tajikistan out to China.28 The government reaction from both Tajikistan and China was to block information online

23

Ibid. Yelena Sadovskaya, ‘The Mythology of Chinese Migration in Kazakhstan’, Central Asia Caucasus Analyst, 7 January 2015. 25 Joanna Lillis, ‘Kazakhstan: China Looking to Lease Land for Agricultural Purposes’, Eurasianet, 3 February 2010. 26 Brigit Brauer, ‘Rumors of Secret Land Lease to China Causes Unease in Kazakhstan’, Eurasia Daily Monitor (Vol. 8, No. 50, March 2011). 27 BBC News, ‘Kazakhstan’s Land Reform Protests Explained’, 28 April 2016. 28 Mark Vinson, ‘Tajikistan to Lease 6,000 Hectares of Land to China’, Eurasia Daily Monitor (Vol. 9, No. 30, 2012). 24

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about the deals.29 Although Tajikistan is in desperate need of outside expertise and investment in agribusiness, with only 6.25 per cent of its land being arable, there are concerns that Chinese investment may result in Tajikistan conceding land to China as part of a deal. Concerns were exacerbated by events like the deal that took place in 2011, when the Tajikistan government granted approximately 1,100 square kilometres of disputed territory to China.30 Part of the popular and political opposition to such land deals is also often linked to perceived corruption in what have historically tended to be non-transparent agreements, which is a reflection on China’s behaviour in the region. Opposition to China is therefore often a way to indirectly protest against perceived domestic political corruption. China’s economic influence has mainly taken the form of soft loans, accompanied by a large Chinese workforce to implement infrastructure projects. The presence of a Chinese expatriate community has often led to tensions with local workers, at times leading to protests over working conditions. In July 2014, Kyrgyz local press reported that a group of Chinese workers had staged a protest in Tokmok, demanding that they be paid, and allegedly taking two Kyrgyz workers hostage. As a result, 25 Chinese workers were deported.31 In July 2015, a fight broke out between Chinese and local Kazakh workers at the Aktogay mine run by KAZ Minerals in eastern Kazakhstan, supposedly over dissatisfaction among Chinese workers with the quality and portion size of food. This escalated into a fight with Kazakh security staff.32 A fight also broke out between Chinese and Kazakh workers at the Atyrau oil refinery in 2012. The exact reason for the fight is unclear, but the Kazakh workers claimed they were attacked.33 Governments in the region sometimes respond to such incidents by creating restrictions for further Chinese labour. For example, a representative from a Chinese SOE operating in Ashgabat in Turkmenistan said that after a Chinese worker was found drunk in a local pub, the Turkmenistan government

Bruce Pannier, ‘Chinese Move on to Tajik Fields’, Asia Times, 2 February 2011; China Digital Times, ‘Latest Directives from the Ministry of Truth, January 2-28, 2011’, 28 January 2011. 30 Radio Free Europe/Radio Liberty, ‘Tajikistan to Lease Land to Chinese Farmers’, 18 January 2012. 31 Tolgonai Umuraliyeva, ‘Tokmok: Chinese Workers Deported After “Unrest in the Factory”’, Kloop Media, 2 July 2014. 32 Tengri News, ‘Mass Brawl Between Workers in the Aktogay Field Because of Portions of Food’, 9 July 2015. 33 Sania Tokyo, ‘After the Fight Kazakh Workers Resettled by Chinese’, Azattyq Radio, 15 August 2012. 29

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reduced the visa quota for the company, resulting in fewer Chinese nationals being hired.34 There have also been attacks instigated by locals. In August 2011, 300 locals in Kyrgyzstan’s Naryn province attacked three Chinese miners at the Solton-Sary gold mine, accusing the Chinese of ignoring environment safeguards and treating Kyrgyz workers poorly. The Chinese ambassador to Kyrgystan subsequently criticised the government for failing to protect the interests of foreign investors.35 In 2012 locals in Jalalabad in Afghanistan attacked a basecamp for Chinese workers who were building a road to the Chaarat gold mine, angry that Chinese trucks were damaging roads.36 Such disputes are not limited to Chinese migrant workers, and there have also been disputes between, for example, Kazakhstani and Turkish workers.37 However, the extent to which China is investing in Central Asia, the size of the workforce that usually accompanies China’s projects, and the occasional clashes all feed into Sinophobic sentiment, and have a substantial impact on the general image of Chinese investment and projects in the region. Despite these historical, and some current, suspicions, the SREB is generally viewed positively. Few of those attending the RUSI workshops felt they fully understood what the project entails, and many fear darker geostrategic forces at play behind it, but greater Chinese investment and cooperation was generally seen as desirable. Subsequent bilateral and multilateral meetings, and official endorsements of the SREB and the CPEC by participating countries, demonstrate that even if the motives and substance are not entirely clear, most countries involved feel it is better to be part of the negotiations and discussions, rather than excluded from Xi Jinping’s initiatives.

34

Authors’ interview with a representative from a Chinese state-owned oil and gas company, Ashgabat, Turkmenistan, October 2014. 35 David Trilling, ‘Kyrgyzstan: Chinese Respond to Latest Mine Attack’, Eurasianet, 30 October 2012. 36 Ibid. 37 Radio Free Europe/Radio Liberty, ‘Brawl Between Kazakh, Turkish Workers Injures 140’, 20 October 2006.

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V. FINANCE AND ECONOMICS OF THE BELT AND ROAD INITIATIVE

Finance In contrast to the lack of more comprehensive and immediate detail about what the BRI means for the region, the allocation of finance to back the ambitious vision has been quick to emerge. China’s President Xi Jinping marked the announcement of the SREB in 2013 with deals worth billions of dollars: $30 billion in Kazakhstan, $3 billion in Kyrgyzstan and $15 billion in Uzbekistan.1 In September 2014, Tajikistan and China signed a $5-billion direct investment deal.2 In Pakistan in April 2015 Xi and Pakistan’s Prime Minister Nawaz Sharif agreed a $46-billion deal to fund the development of the CPEC.3 It is unclear, however, how exact these numbers are. One representative in the Chinese Embassy in Tashkent said that ‘$15 billion’ in a deal with China sometimes changed ‘depending on who you were speaking to’.4 It is also not always clear the degree to which the deals are actually new each time, or whether they are in fact old deals repackaged or reannounced. For example, the deals between Chinese regions and specific Central Asian countries often appear to be subsets of the larger national deal signed when Xi visits the country. Fundamentally, however, the grand totals are less important than the physical projects that result from Chinese investment. This has led many in Central Asia to view China as a somewhat more reliable partner than Russia in terms of aid and infrastructure construction pledges.5

Aleksandra Jarosiewicz, ‘A Chinese Tour De Force in Central Asia’, OSW, 18 September 2013. 2 Yu Lintao, ‘Getting Tight with Tajikistan’, Beijing Review, 22 September 2014. 3 Katharine Houreld, ‘China and Pakistan Launch Economic Corridor Plan Worth $46 Billion’, Reuters, 20 April 2015. 4 Authors interview with representative from Chinese Embassy, Tashkent, Uzbekistan, October 2014. 5 This surfaced repeatedly in conversations, particularly on research trips to Kazakhstan and Kyrgyzstan, September 2014. 1

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China is backing the BRI vision with numerous different funds, and is using a diverse range of funding mechanisms and financial relationships to maximise China’s options. These include an injection of money into domestic regions (which will resonate outside as the companies invested in seek markets beyond China’s borders), dedicated multilateral and bilateral funding mechanisms, and a continuation of previous bilateral arrangements through traditional Chinese policy banks.

Internal Investment Mechanisms China has allocated substantial internal investments to its own infrastructure development so that connectivity is enhanced at home to link with BRI projects abroad. In February 2016 the NDRC announced that it was allocating $61 billion in the first quarter to fund local government infrastructure projects. Funding plans were announced in Shaanxi, Qinghai, Fujian, Zhejiang and Xinjiang.6 Xinjiang said it had earmarked approximately $24.6 billion for infrastructure in 2016, including the expansion of Ürümqi airport, investment in natural gas production, and a power line linking the Junggar Basin to east China’s Anhui province.7 Investment of $79.8 billion has been announced for the infrastructure project in Gansu province in the northwest.8 In May 2016 the NDRC approved more than $8 billion of additional funding for a highway in Jilin and a highspeed rail line through Shanxi and Henan.9 There have also been more specific investments at the provincial level in Central Asian states, particularly by regions and provinces in western China. For example, the governor of Henan province, in central China, signed an agreement to invest $800 million in Tajikistan’s agricultural sector during a visit to Beijing by Tajikistan’s President Emomali Rahmon.10 Then Xinjiang Part-Secretary Zhang Chunxian struck deals with Tajikistan on agriculture, infrastructure and trade, and separately agreed a $2-billion trade deal with Kazakhstan.11 He Yini, ‘Development Body to Give $61b Funds for Local Infrastructure’, China Daily, 17 February 2016. 7 China Daily, ‘Xinjiang Investing Heavily in Infrastructure in 2016’, 7 April 2016. 8 Economic Times, ‘China Kicks Off $79.8 Billion Silk Road Infrastructure Project in Northwest Province of Gansu’, 1 March 2015. 9 Reuters, ‘China Approves $8.34 bln in Infrastructure Projects – NDRC’, 27 May 2016. 10 Radio Free Europe/Radio Liberty, ‘Chinese Province to Invest $800 Million in Tajikistan’, 7 November 2014. 11 Raffaello Pantucci and Anna Sophia Young, ‘Xinjiang Trade Raises Doubts Over China’s “Belt and Road” Plan’, Financial Times Beyond BRICS, 10 August 2016. 6

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China is also looking to diversify how it funds projects. In May 2015 the Chinese government announced it would establish a $16-billion fund to stockpile gold, aimed at boosting SREB trade.12 The NDRC is also exploring certain financial instruments to boost infrastructure, permitting CDB and the Agricultural Development Bank of China to fund big projects through bond issues. The debt would be purchased by the Postal Savings Bank of China with the government likely to subsidise 90 per cent of the interest on the securities.13 The fundamental point here is that China is sending large amounts of money and investment through its policy banks into Central and South Asia. Using new and old vehicles, it is spending money on developing its SREB ambitions, in contrast to the US, for example, which has allocated little direct funding for its New Silk Road. This key fact is one of the aspects that makes the BRI more than simply geopolitical rhetoric.

Multilateral Funding Beijing has set up new funding mechanisms that align with, and reinforce, the objectives of the BRI. Arguably the most significant is the AIIB, with a registered capital of $100 billion. China has contributed almost $30 billion and holds a 30.34 per cent stake in the bank.14 However, the AIIB plans to disburse funding gradually, investing $1.5–2 billion in 2016 and $3–5 billion in 2017.15 The AIIB has 57 founding member countries, including India, Bangladesh, Kazakhstan, Pakistan, Russia, Tajikistan and Uzbekistan. The AIIB was announced in October 2013 in Indonesia in the same speech that unveiled the MSR. Officially, the AIIB is not directly linked to the BRI, but it does offer multilateral funding for BRI-type infrastructure projects. It also provides China with the ability to reshape norms of traditional IFIs that have dominated the world, and Asia in particular. In part, it is a response to China’s frustration at the lack of reform in institutions such as the World Bank, the IMF and the regional Japan-led ADB. For example, in 2010 an IMF reform package called for a 6 per cent shift in voting rights from developed countries to emerging ones, which would increase China’s voting rights. China was frustrated by 12 Andrew Critchlow, ‘China’s New $16bn Gold Fund at Centre of New “Silk Road”’, Daily Telegraph, 26 May 2015. 13 Lan Lan, ‘Top Economic Planner Plans Steps to Bolster Bond Market’, China Daily, 6 August 2015. 14 Zheng Yangpeng, ‘China Gets 30% Stake in AIIB as Bank Takes Shape’, China Daily, 29 June 2015. 15 James Kynge, ‘How the Silk Road Plans Will Be Financed’, Financial Times, 9 May 2016.

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what appeared to be stalling by the US Congress in ratifying the amendments, but the reforms were finally implemented in December 2015, after the formation of the AIIB. Since then, China has also become a shareholder in the EBRD, reinforcing the fact that the AIIB is not aimed at displacing China’s role in other development banks, but instead strengthening its position in them and adding an alternative to multilateral banking.16 It demonstrates also that China wishes to be a serious player in Asian development, also a motivation behind the BRI. As Francis Fukuyama has stated, the BRI ‘represents a striking departure in Chinese policy’ whereby Beijing is ‘seeking to export its development model to other countries’.17 As with many other BRI initiatives, the concept of the AIIB is not new. It was first raised in 2007 by Zheng Xinli, an influential Chinese economist, who proposed it to then President Hu Jintao as an idea to develop China’s relations beyond its southern borders into Southeast Asia.18 Raised again during a 2009 Boao Forum meeting, it was not until 2013, when President Xi publicly took ownership of the concept as part of his tour introducing the BRI concept to Central Asia, that the idea started to formally progress. Initially posited as a $50-billion vehicle for investment, the AIIB’s reception was so positive that Beijing decided to increase it to $100 billion. China has appointed Jin Liqun as the AIIB’s president, an established international economist with experience at the World Bank, the ADB and Chinese state enterprises. The government’s Action Plan also explicitly mentions the role the BRICS countries’ (Brazil, Russia, India, China and South Africa) New Development Bank can have to promote financial integration and facilitate implementation of the BRI.19 The initial authorised capital matches that of the AIIB of $100 billion. The BRICS countries said they would initially underwrite half of this, with each country putting forward equal contributions of $10 billion.20 Despite China’s mention of it in the Action Plan, the New Development Bank is not as broad in scope, naturally focusing instead on projects within its member nations.

16 Anthony Williams, ‘China Becomes EBRD Member as Suma Chakrabarti Visits Beijing’, EBRD, 15 January 2016. 17 Francis Fukuyama, ‘Exporting the Chinese Model of Development’, Livemint.com, 31 December 2015. 18 Jane Perlez, ‘China Creates a World Bank of its Own, and the US Balks’, New York Times, 4 December 2015. 19 NDRC, People’s Republic of China, ‘Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road’, March 2015. 20 Bridges, ‘BRICS Countries Launch New Development Bank’ (Vol. 18, No. 26, 17 July 2014).

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Moreover, the speed at which the bank was developed may be indicative of its efficiency. First proposed during the BRICS Summit in 2012 in New Delhi, the agreement establishing the bank was signed two years later in 2014 at the Summit in Fortaleza, Brazil and it was not formally launched until the July 2015 BRICS–SCO–Eurasian Economic Union Summit in Ufa, Russia.21 This development is another indication of how projects that China is involved in that seek to finance or build infrastructure and enhance connectivity can be subsumed under the BRI ‘spirit’. The Action Plan also highlights the need to continue negotiations on creating the SCO Development Bank, which Chinese officials and experts have been advancing for some time. This presents more of a challenge, as there has been strong resistance from other SCO members, particularly Russia, due to concerns about China’s growing influence.22 Although the AIIB and BRICS New Development Bank, and potentially the SCO Development Bank in future, are entities in their own right, they are still described by the Chinese government as adding to the ‘financial integration’ that is an ‘important underpinning for implementing the Belt and Road initiative’.23 This reflects how numerous finance initiatives dedicated to infrastructure, whether focused on commerce or development, are at least rhetorically linked to the broader BRI vision. China has also successfully participated in bidding for other development banks’ multilateral projects, which are furthering infrastructure development. For example, the Xinjiang Beixin Road and Bridge Group won the contract to build the Kabul–Jalalabad road in Afghanistan, a project financed by the ADB. The Angren–Pap railway in Uzbekistan was a World Bank-funded project. China’s increased activity with such organisations shows a concerted effort to work more internationally. However, there have also been concerns from the international community about transparency and governance – in particular from the US, which actively lobbied countries not to join the AIIB.24 China’s work with IFIs certainly demonstrates a professionalism in competitive tenders, as well as an ability to comply with international standards. However, there have been problems of both corruption and inadequate François Godemont and Agatha Kratz (eds), ‘“One Belt, One Road”: China’s Great Leap Outward’, European Council on Foreign Relations, 10 June 2015. 22 Chris Rickleton, ‘By Opposing SCO Development Bank, Is Russia Biggest Loser?’, Eurasianet, 25 March 2015. 23 NDRC, ‘Vision and Actions on Jointly Building Silk Road Economic Belt and 21stCentury Maritime Silk Road’. 24 In an interesting twist, James Woolsey, the adviser to then President-elect Donald Trump, said in the wake of the US election that this was a strategic mistake by the US. Wendy Wu and Kristin Huang, ‘US Opposition to AIIB “Strategic Mistake” Says Senior Trump Advisor’, South China Morning Post, 10 November 2016. 21

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professional management from Chinese companies working on projects abroad. For example, in June 2016 the World Bank banned a Chinese contractor from the Beitbridge–Chirundu Highway in Zimbabwe for tender-rigging and fraud.25 In Poland, China’s Covec construction firm abandoned a road-building project after failing to complete it.26 Covec’s bid was very low, prompting complaints from rivals that the project was impossible to build so cheaply. Once the work had started, Covec tried to renegotiate based on higher-than-expected costs, exacerbated by poor planning and lack of financial skills.27 The AIIB will therefore be a test of China’s ability to act by the standards set by international development norms. An Indian businessman at the RUSI workshop in New Delhi expressed concern as to how ‘good’ the good governance would be within the AIIB structure. He particularly questioned transparency of tenders and the need to reassure for tender participants that there is ‘fair play’ – in other words, that the deals were being tendered and implemented in a transparent manner, rather than fixed between Chinese entities. China is aware of these concerns and has made efforts to ensure that the leadership of the AIIB is made up of the brightest and the best of international banking, and that the institution is set to high global standards. The AIIB has already financed projects with IFIs and development agencies, demonstrating an acceptance from international organisations of the AIIB’s approach. In April 2016 the AIIB agreed to provide a $100-million loan towards constructing a 64-kilometre motorway between Shorkot and Khanewal in Pakistan. This was a joint project with the ADB and the UK’s Department for International Development.28 In June 2016 the AIIB’s first project with the EBRD was agreed, with each providing a $27.5-million loan to upgrade a section of motorway connecting Dushanbe in Tajikistan to the border with Uzbekistan.29 In late September 2016 the AIIB agreed to contribute a $300-million loan for a Pakistan hydropower project with the World Bank.30

The Source, ‘Chinese Contractor for Beitbridge-Chirundu Highway Banned by World Bank for Corruption’, 6 June 2016. 26 Jan Cienski, ‘Poland to China: You’re Fired’, Financial Times, 15 June 2011. 27 James T Areddy, ‘European Project Trips China Builder’, Wall Street Journal, 4 June 2012. 28 Asian Development Bank, ‘ADB Approves First Cofinancing with AIIB for a Pakistan Road Project’, 10 June 2016. 29 Svitlana Pyrkalo, ‘Road Project in Tajikistan Becomes First Joint EBRD-AIIB Investment’, EBRD, 24 June 2016. 30 AIIB, ‘AIIB’s Board of Directors Approves Loans to Finance Energy Projects in Pakistan and Myanmar’, AIIB Press Release, 29 September 2016. 25

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China is also seeking to advance projects along the SREB and the CPEC in a more targeted fashion. Again, these may not be tagged as explicit SREB or CPEC funding mechanisms, and may have emerged before the project was announced, but their objectives match the broad infrastructure investment that epitomises the BRI, an example being the China–Eurasia Economic Cooperation Fund, proposed by the Ministry of Commerce in 2014. The exact details of the fund are unclear, although during a speech in late 2015, Premier Li Keqiang spoke of the fund as a vehicle to enhance SCO cooperation, pointing out that China had provided $27.1 billion in lines of credit to SCO members.31 Then there is the Russia–China Investment Fund, established in 2012 as a joint fund advanced by sovereign wealth funds in China and Russia. Established using capital of $2 billion each from China and Russia, as well as seeking a further $2 billion to be raised from international institutional investors, the fund’s stated intent is to invest 70 per cent of its finances into Russia and Commonwealth of Independent States countries, and 30 per cent into China.32

Bilateral Funding China has also created the Silk Road Fund, a dedicated fund for the BRI that specialises in private equity, as well as some debt finance. The $40-billion fund was announced in November 2014 using money from the Chinese State Administration of Foreign Exchange, EximBank, the CDB and the China Investment Corporation (CIC), and is intended as a commercially minded entity investing in BRI projects. The fund pledged its first investment of $1.65 billion in April 2015, providing capital for the Karot hydropower project in northeast Pakistan.33 In September 2015 it announced that it would purchase 9.9 per cent of the Russian Yamal LNG field at a cost of $1.2 billion. Some of the other deals made by the Silk Road Fund demonstrate how commercially minded it is compared with some of the other financial transactions Chinese SOEs or policy banks have made as part of the BRI investment. For example, the Silk Road Fund has made investments in the initial public offering of state investment bank China International Capital Corporation, and power conglomerate China Energy Engineering Corporation.34 The Silk Road Xinhua, ‘China Proposed Six Platforms for SCO Cooperation’, 15 December 2015. Russia-China Investment Fund, ‘About Us’, , accessed 5 December 2016. 33 Xinhua, ‘China’s Silk Road Fund Makes First Investment in Pakistan Project’, 20 April 2016. 34 Kane Wu, ‘China’s Silk Road Fund Backs Another IPO of State-Owned Firm’, Wall Street Journal, 24 November 2015. 31 32

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Fund is focused on making sure that China identifies profits along the BRI rather than simply undertaking large potentially loss-making projects in developing countries. The multilateral development bank framework of the AIIB is clearly an important step for China, and it serves an ancillary foreign policy aim of showing China as the key player in Asian development. However, a lot of the BRI work will in reality continue to be done through bilateral cooperation, demonstrating a continuation of previous policy. As one European analyst stated at the June 2015 RUSI Shanghai Conference, ‘the real game in Central Asia [for China] is enhanced bilateralism’, which applies equally when looking to South Asia. The numbers support this. EximBank lent more than $80 billion in 2015, compared to the $1.5–2 billion that the AIIB plans to invest in 2016.35 The mechanism most often used to fund these infrastructure and energy projects is provision of a soft loan agreed through either China’s EximBank or the CDB, and then implemented by Chinese companies. This approach is not actually novel to China or the region, with both Korean and Japanese banks offering similar structures in regional contexts, but the significance is the scale and size of Chinese loans and their rapid implementation. Usually, the deals are structured in such a manner that a Chinese company and workforce are attached to the deal. For example, the 2013 loan of $385 million to Kyrgyzstan to upgrade the Bishkek Thermal Power Plant was from China’s EximBank. This was offered at a low interest rate of 2 per cent for 20 years. Kyrgyzstan was said to pay interest only for the first eleven years.36 This loan covered the value of the work of Chinese company TBEA. Similarly, in May 2013, EximBank signed a loan with Tajikistan to provide it with $20.9 million to implement the Safe City Project in Dushanbe that would see the installation of CCTV cameras across the city at strategic locations to provide 24-hour surveillance. At a total cost of $22 million, the loan was repayable over a 20-year timeframe, which Tajikistan said would be gathered from fines collected from offenders caught by the cameras. The project was implemented by Huawei, the Shenzhen-based telecommunications company.37

Kynge, ‘How the Silk Road Plans Will Be Financed’. Maria Levina, ‘China Helps Upgrade Bishkek Thermal Power Plant’, Times of Central Asia, 23 September 2013. 37 Asia Plus, ‘Tajik Interior Minister Meets Huawei Officials in Beijing to Discuss the Safe City Project’, 25 February 2016. 35 36

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Return on Investment? The question remains: does China expect to make returns on these projects? The lack of transparency around the deals and actual amounts invested and transferred into the projects makes this hard to ascertain. One article has argued that the reason CNPC and its affiliates are so dominant in Kazakhstan’s oil sector is that they undercut competitors to the point that the Chinese companies make a loss.38 This was reinforced during conversations in Dushanbe, where some representatives working in IFIs commented that they could not see how China makes any profit on the commercial projects.39 In some cases, China is said to have footed the bill for building infrastructure in order to be successful in other projects – for example, the many large vanity projects built in Dushanbe which appear to have helped endear Beijing to the Tajik leadership. In other cases, such as the Amu Darya oil project in northern Afghanistan, the project has been perceived as a way for CNPC to establish a foothold in Afghanistan.40 The initial oil project was relatively small for CNPC, but the region offered potential gas wealth through future projects, and the pipeline infrastructure that could go through the territory might help connect to other Central Asian or Iranian fields.41 The profitability of infrastructure projects has historically been questionable, particularly given the underdeveloped economic power of some of China’s key SREB and CPEC partners. Previous infrastructure projects in Central and South Asia have not necessarily been driven by commercial logic. As Tom Miller, an analyst at Hong Kong-based financial research company Gavekal Dragonomics, has said, ‘Chinese officials privately admit they expect to lose 80 per cent of their [infrastructure] investment in Pakistan, 50 per cent in Myanmar, and 30 per cent in Central Asia’.42 It is also possible that China plans on simply writing off the debt, which it has done before in Africa.43 This logic of course does not sit within the spirit of prosperity that China is promoting and becomes more difficult to sustain as economic belts tighten in Beijing.

38 Nurlan Zhumugalov, ‘Avtonomnaya respublika CNPC v Kazakhstane’ [‘Autonomous Republic of CNPC in Kazakhstan’], yvision.kz. 39 Author conversation with international financial institution in Dushanbe, Tajikistan, 2012. 40 Tini Tran, ‘As U.S. Fights, China Spends to Gain Afghan Foothold’, NBC News, 7 March 2010. 41 Author conversation with oil executive, Ashgabat, Turkmenistan, May 2012. 42 Kynge, ‘How the Silk Road Plans Will Be Financed’. 43 Deborah Brautigam, The Dragon’s Gift: The Real Story of China in Africa (Oxford: Oxford University Press, 2011).

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Moreover, the SREB and the CPEC’s promotion of railways, although a key part of connectivity, is not necessarily the best economic choice of transport in all cases. In order to be viable, railways will mainly need to focus on transporting high-end, high-value and hitech goods, given that the cost of shipping is cheaper, although rail is faster. China is aware of this, and many of the existing railways originate in cities such as Chengdu, Chongqing and Suzhou, which have hi-tech zones. Freight may include computer equipment, 3D printers and ATM machines, which make the cost worthwhile.44 Freight companies may also offer customers the option of only using part of the containers in order to reduce costs. Furthermore, the return items from Europe are expected to be high-end, such as wine, cheese, chocolates or luxury goods. At the moment it is unclear this is working as planned with reports that the Ministry of Commerce is subsidising the trains which come back empty. Given the effort to promote the prosperity connected to the SREB and the CPEC, and the domestic economic slowdown, Beijing will need to think strategically. The slowdown and overcapacity problems are not necessarily going to be fixed by exporting overcapacity and overinvestment – especially if Chinese companies fail to reform and are drawn into working on unsuccessful projects in difficult countries. Indeed, should China’s economic growth slow further, the country will have to ‘scale back aspects of the AIIB and OBOR [BRI]’ rather than invest more.45 Likewise, according to a recent report by Geopolitical Futures, China’s economic slowdown is a major risk for Central Asian economies and it remains unclear to what extent China will live up to its promises of investment in the region.46 To illustrate this, China’s role as an investor and trading partner in Central Asia has been reduced by its slowdown and low world commodity prices. This is particularly the case with Turkmenistan, where the decision to stop building the fourth gas pipeline, Line D, is a reflection of a lack of need due to a slowing economy. According to the OECD, China’s economic slowdown will continue to affect South Asian and Southeast Asian regional growth as export demand falls and investment flows decline.47

Wade Shepard, ‘Why the China-Europe “Silk Road” Rail Network is Growing Fast’, Forbes, 28 January 2016. 45 Glaser and Funaiole, ‘Geopolitical Consequences of China’s Slowdown’. 46 GeoPolitical Futures, ‘Net Assessment of Central Asia’, 17 March 2016. 47 OECD, ‘Overview: Economic Outlook for Southeast Asia, China and India 2016; Enhancing Regional Ties’, 2015. 44

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Benefit to Locals? There is also, linked to the question of profitability, the question of how far the SREB and the CPEC will create prosperous societies out of China’s local partners. A European analyst at the Shanghai Conference highlighted that it is currently unclear how SREB partners in Central and South Asia can multiply the benefits of the project to them, so they are not ‘standing on the platform, waving at a Chinese train go[ing] past’.48 As mentioned previously, perceptions of Chinese investment can be negative due to a fear that China is trying to dominate neighbours through economic and consequent political influence. Part of this issue is that Chinese investment tends to come with a Chinese workforce. Not only does this fuel concerns of a covert Chinese ‘land grab’, but it also means that fewer jobs go to locals. At times it can be challenging to find skills within the national labour force to carry out the work in more impoverished countries, such as Tajikistan, or in those that have suffered from a historical degradation of the education system, such as Turkmenistan. China would benefit from engaging better with local communities on local workforce participation, possibly showing corporate social responsibility through training. That said, the numbers of Chinese workers can be exaggerated, particularly in the energy industry. As mentioned, Konstantin Syroezhkin has said that China controls approximately 25 per cent of Kazakhstan’s oil industry.49 This has led to fears that China is gradually taking over this industry, and bringing Chinese workers with it, when in fact in 2012 only 25 of PetroKazakhstan’s employees were Chinese specialists, amounting to only 1.1 per cent of the workforce, and there were just 20 Chinese managers among the 440 employees in the company’s head office.50 However, it is often stipulated in Chinese contracts that managers, specialists and labourers will be brought from China, which results in tensions on the ground when locals are unable to get what are perceived as the ‘good’ jobs. The Central Asian countries in particular have tried to address this issue through local content rules. A representative from a development bank said that Turkmen law requires that 70 per cent of a project workforce be local workers, although it does not specify how this applies to particular positions.51 However, this representative’s view, echoed by 48

European analyst participant at RUSI-SASS Shanghai Conference, June 2015. Konstantin Syroezhkin, ‘China’s Presence in the Energy Sector of Central Asia’, Central Asia and the Caucasus, (Vol. 13, No. 1, 2012). 50 Ibid. 51 Authors’ interview with representative from development bank, Ashgabat, Turkmenistan, October 2014. 49

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other representatives from foreign companies, including Chinese, was that in practice this rule is often not adhered to. A representative from a Chinese SOE highlighted the same stipulation but seemed to view it as something that had to be implemented but could be done fairly easily and cheaply. He said that they ‘hire people to meet the requirement even if they don’t do anything’.52 Consequently, a company could focus on getting the numbers of trained staff that it needed from China and then fill the requisite ‘lower’ jobs with local employees. China has not been clear about the specific benefits that the BRI will bring to local economies, other than the overarching terms of ‘economic development’ and ‘prosperity’. Some of the recent protests in Kazakhstan against land reform seemed to be targeted at China, with locals worried that China would gain unfairly through non-transparent deals with the government of Kazakhstan. There have been strong protests against China in Pakistan, particularly in Khyber Pakhtunkhwa in the northwest and Balochistan in the southwest, based on fears that China is draining Pakistan’s resources for its own benefit. Protests are also rooted in Pakistan’s party politics. For example, the opposition party Pakistan Tehreek-e-Insaf controls the provincial government in Khyber Pakhtunkhwa, and some have said that the party would like to see the CPEC fail.53 Past experience of Chinese investment has raised suspicions that China is willing to engage in corrupt practices where money is taken from national funds and redirected to political elites (known as ‘local rules’). In 2003, for example, CNPC acquired a 25 per cent stake in Kazakhstan’s AktobeMunaiGas, an oil and gas company. There is documentary evidence to suggest that, through a complex set of business transactions involving a group of offshore entities, this sale involved a repurchase scheme of shares in AktobeMunaiGas from a company controlled by a former business associate of the Kazakh president’s son-in-law.54 Questions surround opaque dealings through companies registered in the British Virgin Islands (BVI) in relation to the acquisition, but Kazakh authorities have banned any reports. 52

Authors’ interview with representative from a state-owned oil and gas company, Ashgabat, Turkmenistan, October 2014. 53 Pantucci, ‘China–Pakistan: With Great Investment Comes Some Responsibility’. 54 Mukhamedzhan Adilov, ‘Zyat prezidenta Timur Kulibaev uvel iz budzheta Kazakhstana $1.8 milliard, sekonomiv na nalogakh vmeste c Lakshmi Mittalom. Eshcho $1 milliard v Shveytsarii spryatal test’ [‘The President’s Son-in-law Timur Kulibaev Stole $1.8 Billion Dollars from the Budget of Kazakhstan, Saving on Taxes Together with Lakshmi Mittal. Father-in-law Hid Another $1 Billion in Switzerland’], 26 February 2010, , accessed 12 December 2016.

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There have also been instances of opacity in the funding of infrastructure built by Chinese companies. The state-owned China Road and Bridge Corporation, funded through an EximBank loan, upgraded the Dushanbe–Khujand–Chanak road in Tajikistan. In April 2010 the BVI-registered Innovative Road Solutions, a company with no apparent track record in such projects, implemented toll booths on the road as part of the Tajikistan government’s strategy to raise funds to repay the Chinese loan. Even if companies are attracted to the SEZs that Chinese companies are moving into or helping construct, they will take some time to actually establish factories and deliver on employment and other opportunities from which locals may ultimately benefit. Consequently, as a solution to locals’ concerns about the BRI, SEZs are only a partial answer.

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VI. SILK ROAD SECURITY

China’s external investment will no doubt make it more aware of the security situation in the participating countries. China has concerns not only about how developments in the Central and South Asia region could affect its own security situation (see Chapter II), but also how regional security along the SREB and the CPEC will affect China’s ability to implement and maintain projects. The countries into which China is seeking to invest under the auspices of the SREB and the CPEC have their own political and security risks, many of which China has already had to navigate. Such challenges have caused Beijing to explore market entry political risk analysis, but this is still a relatively new field.1 There have been some reports of Chinese private security companies emerging, but it is not clear that they are active in Central Asia yet, with most reports coming from Africa.2 Security risks along the routes might escalate, causing disruption or damage to infrastructure that China has invested in, and could even affect the lives of Chinese citizens working on these projects. This chapter outlines how China is approaching security cooperation in the region, the challenges it faces and what implications this has for the SREB and the CPEC. It will also look at how Chinese security policy may evolve to manage this increased investment.

Regional Security: Central Asia Central Asia has been considered part of Russia’s security mandate since the dissolution of the Soviet Union. China has been sensitive towards working too overtly in this area, given Russia’s sphere of influence, China’s

1

Authors’ interview with representative from the Chinese Academy of International Trade and Economic Cooperation (CAITEC), July 2016; authors’ interview with Control Risks participant at Shanghai Conference. 2 Ben Marino, ‘China’s Public Sector Looks to Private Security for Help’, Financial Times, 26 November 2013.

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‘non-interference’ policy, and a general awareness of China’s lack of experienced capability in mitigating security threats. Nonetheless, China has over time built up some important bilateral and multilateral security ties in the region, making its security role in Central Asia more advanced than many assume. The stability and security of Central Asia has been of great importance to China for some time, and China’s security influence has gradually increased. Having a stable Central Asia, not only as a trading partner with Xinjiang, but as a gateway to other, arguably more lucrative, markets in Europe, is a central requirement for the success of the SREB. The potential danger of the region becoming a staging ground for Uighur militants to attack China is a key counterterrorism concern. In contrast to threats from terrorism and militancy in South Asia, those in Central Asia are more latent. The bigger concerns come from potential political disruption due to regime change or after the inevitable succession that will take place when the leaderships of the countries of Central Asia – that have for the most part remained the same since the end of the Cold War – change. Within this context, the apparently smooth succession in Uzbekistan in 2016 after the passing of President Islam Karimov suggests that this model of relatively stable authoritarian transition can be replicated beyond the Turkmen context, where it happened in 2006 when Saparmurat Niyazov passed away. However, counterterrorism and border controls, as well as capacitybuilding in Central Asian state structures, have been clear priorities for China’s security policy. It is unlikely that these initiatives will increase in a way that eclipses Russia’s security engagement in the region, but the increasing investment and subsequent assets in the region under the SREB banner will no doubt draw more of China’s security attention. China can rely on Russia on a number of security matters, but not necessarily when it comes to protecting China’s own security priorities and investments. The key public expression of China’s security engagement in the region has historically been the SCO, the members of which are Russia, China, Kyrgyzstan, Tajikistan, Kazakhstan and Uzbekistan. The group was founded in 2001 building on the ‘Shanghai Spirit’ of the Shanghai Five grouping of Russia, China, Kyrgyzstan, Tajikistan and Kazakhstan. The SCO has principally served as a venue for China to engage with the Central Asian powers and Russia through the lens of security, with countering the ‘three evils’ (terrorism, separatism and religious extremism) as the main organising principle. At the July 2015 SCO Summit, it was agreed that India and Pakistan were to be admitted as full members of the SCO, although the process has been lengthy and is ongoing. It is currently predicted that their membership process will be complete by the next

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Summit in Astana, Kazakhstan in 2017. This is likely to change the dynamic of the group, but discussion here will focus on the interaction between the current main six members. Although concrete security cooperation comes from the SCO framework, a uniting feature is that all member states view security, including the threats and methods for tackling them, in the same way. With each member represented by varying degrees of authoritarian governments (with the notable exception of Kyrgyzstan), they have agreed to fight the ‘three evils’. In reality, the precise difference between these issues is blurred, with all agreeing that in essence any attempt to undermine the political status quo represents a security threat. For China, the SCO serves as an umbrella organisation that gives the country multilateral cover for what, in reality, tends to be bilateral engagement. Agreement on the threats to state security within the SCO has facilitated China’s bilateral cooperation under the auspices of the multilateral framework, legitimising its security role in Central Asia without alienating Russia. This also allows China to get allies to help address its own domestic security agenda, which is integral to the overall SREB.

Bilateral Cooperation: Capacity-building and Border Security China tends to view Kyrgyzstan and Tajikistan as particularly weak links, making them the main focus of its bilateral military and aid assistance.3 This is in part because of their economic fragility, but also because of the perceived risk of political instability stemming from weak governance and low state capacity to manage such security threats. Kyrgyzstan’s two political revolutions and inter-ethnic violence in 2010 disrupted China’s ability to operate in the country and have caused concern regarding Kyrgyzstan’s functionality as a state. Security concerns towards Tajikistan are less substantial (although increasing), given the Russian military and security engagement there, but Afghanistan is still a concern given the long border between the two countries. The role played by both Kyrgyzstan and Tajikistan as transit states for the narcotics trade from Afghanistan is also problematic for China, which is an end market for such drugs. These environments are conducive to criminal networks that have targeted Chinese nationals and investments.4 3 Authors’ interview, China Institutes of Contemporary International Relations, Beijing, November 2013. 4 Authors’ interview with Chinese businessman in Bishkek on the murder of glasses salesman in Bishkek.

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In conversations the authors had in Beijing, Kyrgyzstan was viewed as particularly difficult.5 One Ministry of Foreign Affairs representative from a Chinese embassy in Central Asia blamed this in part on democratisation resulting from the so-called ‘colour revolution’ in 2010, when the Tulip Revolution overthrew the government in Kyrgyzstan. He said, ‘Kyrgyzstan is not suited to democracy, as it does not have the economic foundation’.6 In a conversation with a Western diplomat, the diplomat recalled Chinese officials becoming ‘apoplectic’ about border security in Kyrgyzstan.7 The security threat to China was brought into sharp focus when a car bomb exploded after ramming the gates of the Chinese Embassy in Bishkek. While it is not the first time Chinese diplomats have been targeted in the city,8 it was the first time a Chinese diplomatic building had been hit by terrorism in the region. According to Kyrgyzstan’s state security authorities, the perpetrator was an ethnic Uighur holding a Tajik passport, suspected of having links to militants active in Syria,9 which raised potential concerns that the problem was regional. In the wake of the bombing, Chinese experts contacted the authors to express concern about the potential for this to spill over to Tajikistan given that country’s similar weak governance structure and low state capacity.10 In many ways, the attack realised a longstanding Chinese concern that its domestic terrorist threat would become a real and immediate threat to Chinese nationals and interests around the world. Previously, China had largely drawn comfort from the fact that it was a second-order target for international terrorist groups. The bombing (which came after the earlier bombing of the Erawan Shrine in Bangkok in August 2015, when five Chinese nationals died) showed how China was now a direct target. Kyrgyzstan and Tajikistan have therefore been the two main focal points for Chinese security aid and training, counter-narcotics, and border

5

This has been a repeated concern raised in Beijing during author conversations with think tank analysts, officials and academics since 2009. 6 Authors’ interview with representative from Chinese Embassy in Central Asia, October 2014. 7 Authors’ interview with Western Ambassador, Bishkek, Kyrgyzstan, November 2013. 8 Dawn, ‘Chinese Diplomat Shot Dead in Kyrgystan’, 1 July 2002. 9 Olga Dzyubenko, ‘Kyrgyzstan Says Uighur Militant Groups Behind Attack on China’s Embassy’, Reuters, 7 September 2016. 10 Author contacts in the wake of the Bishkek bombing – a number of Chinese experts got in touch enquiring about the state of Tajikistan’s security and stability and potential threats to Chinese interests.

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control. Some of these activities have been carried out under the auspices of the SCO, but in reality they tend to be bilateral. The figures for aid are increasing, but are still nonetheless far less substantial than Russian military support, and China has tended towards the ‘softer’ side of security support, favouring aid, training or infrastructure over military equipment. Military aid and training has been a significant part of China’s relations with Kyrgyzstan and Tajikistan in a bid to try to improve capacity within those countries’ armed forces and border guards. Under a 2002 agreement with Kyrgyzstan, China provided the country with vehicles, communications equipment and uniforms worth $1.2 million.11 In April 2009 Beijing provided $1.5 million in aid to Tajikistan’s military.12 In a notable increase in funding, in 2013 China provided Kyrgyzstan with $17.5 million of equipment and weapons.13 In March 2014 it emerged that China had given $12 million to Tajikistan to support the construction of an ‘officers’ house’. During Defence Minister Chang Wanquan’s visit to Tajikistan it was reported that the country was to receive ‘hundreds of millions of dollars’ in aid.14 In September 2014, around the time of a visit by President Xi Jinping, Kyrgyzstan revealed it had been given $16 million in military aid by China, though the exact nature of the equipment was not clear.15 Border security and counter-narcotics have also been a key focus of this security cooperation, highlighting how some of the cooperation with Central Asia is also about protecting China from any security problems that could spill over from Central Asia into Xinjiang. In summer 2013 Kyrgyzstan and China conducted a joint patrol of their shared border.16 In October–November 2014 Tajikistan and China conducted a counternarcotics operation aimed at countering drugs transiting through Tajikistan to China, which resulted in the seizure of 181 kg of drugs, including heroin, opium and cannabis.17 In November 2014, shortly

International Crisis Group, ‘China’s Central Asia Problem’, 27 February 2013. Sébastien Peyrouse, ‘Military Cooperation Between China and Central Asia: Breakthrough, Limits and Prospects’, China Brief (Vol. 10, No. 5, March 2010). 13 Asia Plus, ‘China to Supply Military Equipment to Kyrgyzstan for $17.5 Million’, 14 November 2013. 14 Joshua Kucera, ‘China Promises Tajikistan “Hundreds of Millions of Dollars” in Military Aid’, Eurasianet, 1 April 2014. 15 Joshua Kucera, ‘China Boosts Military Aid to Kyrgyzstan, Tajikistan’, Eurasianet, 5 September 2014. 16 Makhinur Niyazova, ‘Kyrgyz and Chinese Border Guards Have Started Joint Patrolling Border’, 24, 26 June 2013. 17 Lenta.ru, ‘Switching to Soft Power: New Round in the Fight against Drugs’, 24 April 2015. 11 12

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before officials met in Beijing at the Xiangshan Forum, the Kyrgyz and Chinese defence departments established a law enforcement cooperation mechanism between border guards and undertook a joint training demonstration, during which border guards of the two countries were merged into battle groups to demonstrate border checks and combat shooting as well as a joint drill aimed at capturing violent terrorists.18 China has also been offering an eleven-month language course in Nanjing to Kyrgyz border guards, paid for by the Chinese government.19 Given that Russian is widely spoken across the region, this again reflects China’s desire to increase interoperability with Central Asian states to work towards prioritising Chinese security concerns. In October 2015 a delegation from China representing the country’s border force visited Bishkek to discuss joint operations regarding airport security.20 Although this security support is not an SREB initiative, it demonstrates how seriously China sees Central Asian security as an extension of its own domestic security agenda. In 2016, Beijing showed significant support for Tajik border guards, offering to finance and build eleven border posts and training centres for guards along Tajikistan’s border with Afghanistan.21 Prior to their departure in 2005, Russian border guards had historically patrolled the Tajik–Afghan border, but sensitivities about the arrangement led to bilateral tensions, with the Tajik government eventually wishing to take back control of its security. Recently, apparently in response to a tightening economic environment, Russia chose to reduce the size of its security effort in Tajikistan.22 Concerns over the adequacy of border security remain, given the long, porous and hard-to-police frontier. Given how active Russia has been in Tajikistan’s security, and that Tajikistan houses Russia’s largest military base abroad, such direct activity on the border could be viewed as an encroachment by China on Russia’s traditional security activity. Although China has also cooperated on security with the three other Central Asian states – Kazakhstan, Turkmenistan and Uzbekistan – it has fewer public concerns about these states. Its strongest security partner in the region is Kazakhstan, with whom China has conducted drug-seizing China Military Online, ‘Border Defense Departments of China and Kyrgyzstan Build Law Enforcement Cooperation Mechanism’, 2 November 2014. 19 Authors’ interview with Kyrgyz security official, Bishkek, Kyrgyzstan, April 2014. 20 Tatiana Kudryavtseva, ‘Kyrgyzstan and China Have Agreed on the Joint Protection of Air Borders’, 24, 27 October 2015. 21 Nazarali Pirnazarov and Olzhas Auyezov, ‘China to Build Outposts for Tajik Guards on Tajikistan-Afghanistan Border’, Reuters, 26 September 2016. 22 Olzhas Auyezov, ‘Russia to Cut Troop Levels in Tajikistan amid Questions about its Influence’, Reuters, 4 February 2016. 18

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operations since 2008,23 as well as joint border patrols in 2008,24 2009 and 2011.25 In October 2015 Chinese Defense Minister Chang Wanquan visited Astana, where he announced that China and Kazakhstan planned to hold joint special forces training. Both sides also signed an agreement on China’s ‘free-of-charge technical assistance to the Kazakh army’.26 China has also supplied equipment to Uzbekistan and Turkmenistan. In 2007, Beijing gave the Turkmen army precision equipment and uniforms. China has also given sniper rifles and military equipment, such as flak jackets, night-vision equipment and vehicles, to Uzbekistan.27 In 2009 there was an agreement for Beijing to provide $3.7 million to Uzbekistan to equip its border crossings with mobile scanning systems.28 A more dramatic development in the sphere of military cooperation, however, is highlighted by China’s sale to, or exchange of arms with, certain Central Asian states. In June 2014 press reports stated that Uzbekistan had purchased military drones from China. In February 2015 there was a press report that China had supplied the HQ-9 air defence system to both Uzbekistan and Turkmenistan, believed to be in partial payment for natural gas imports from Central Asia.29 Higher-level military sales are also increasing between China and the three wealthier Central Asian states, Kazakhstan, Turkmenistan and Uzbekistan. Kazakhstan, for example, purchased two Wing-Loong UCAVs in March 2016, having watched them in an SCO exercise and discussed the potential purchase with China since 2012.30 In 2015 both

US–China Economic and Security Review Commission, ‘2015 Annual Report to Congress’, 17 November 2015, p. 409, , accessed 11 April 2017. 24 zakon.kz, ‘Pogranichniki Kazakhstana i Kitaya vveli v praktiku sovmestnuyu okhranu granitsi’ [‘Border Guards of Kazakhstan and China Have Brought into Practice Joint Border Security’], 18 October 2008, , accessed 12 December 2016. 25 Pakistan Defence, ‘Chinese and Kazakhstani Militaries Hold 1st Joint Border Patrol in 2011’, 10 February 2011, , accessed 12 December 2016. 26 Aiman Turebekova, ‘Kazakhstan, China Strengthen Defence Cooperation’, Astana Times, 16 October 2015. 27 Niklas Swanstrom, ‘The Security Dimension of the China–Central Asia Relationship: China’s Military Engagement with Central Asian Countries’, testimony before the US-China Economic and Security Review Commission, 18 March 2015, , accessed 11 April 2017. 28 Peyrouse, ‘Military Cooperation Between China and Central Asia’. 29 Joshua Kucera, ‘Has China Made its First Big Military Sale in Central Asia?’, Eurasianet, 6 February 2015. 30 Richard Fisher, ‘Kazakhstan Purchases Two Chinese Wing-Loong UCAVs’, IHS Jane’s Defence Weekly, 7 June 2016. 23

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Turkmenistan and Uzbekistan purchased Chinese anti-aircraft missile systems, with reports emerging in 2016 of Turkmenistan using the equipment during a military exercise.31 All of this is particularly salient for the broader question about how much China and Russia will clash or cooperate in Central Asia, given Russia’s historical role as a supplier of arms to the region. Turkmenistan will likely become more of a concern for China, given the increased activity on the Turkmen–Afghan border and the proximity of CNPC’s energy projects in the country near the border (the supergiant Galkynysh field near the city of Mary). However, this is arguably the most difficult country in the region to influence in security terms. There have been a number of incidents along the border between Turkmenistan and Afghanistan over the past few years, although the details are unclear. It is also likely that some of these incidents have been related to the drug trade, for which Turkmenistan is also a transit country, rather than militant insurgency. Turkmenistan opted for a status of neutrality when it became independent, in principle allowing it to prevent outside powers from interfering in internal security matters, and the authorities are particularly sensitive about any perceived interference in, or criticism of, domestic security affairs. In contrast to China, Russia has already publicly and pre-emptively offered assistance on security to Turkmenistan, according to a statement made by Russia’s foreign affairs minister, Sergei Lavrov, after a meeting with his counterpart Rashid Meredov in Ashgabat.32 Turkmenistan rejected the offer, preferring to handle border security itself.33 Turkmenistan’s President Gurbanguly Berdymukhamedov also reacted sharply in October 2015 when Kazakhstan’s President Nursultan Nazarbayev expressed concern regarding ‘incidents’ on the border with Afghanistan.34 John C K Daly, ‘Turkmenistan and Uzbekistan to Acquire Chinese Anti-Aircraft Missile Systems’, Silk Road Reporters, 3 February 2015; Joshua Kucera, ‘Turkmenistan Shows Off New Chinese Rockets’, Eurasianet, 2 April 2016 32 ‘Vistupleniye i otvety na voprosi SMI Ministra inostrannikh del Rossii S. V. Lavrova po itogam peregovorov s zamestitelem Predsedatelya Kabineta ministrov, Ministrom inostrannikh del Turkmenistana R.O. Meredovim, Ashkhabad [‘Speech and Answers and Questions SMI of the Minister of Foreign Affairs of Russia, S.V. Lavrov Following Talks with Deputy Chairman of the Cabinet of Ministers, Minister of Foreign Affairs of Turkmenistan R.O. Meredov’], Ashgabat, 28 January 2016, , accessed 12 December 2016. 33 ‘Berdymukhamedov otkazalsya ot pomoshchi Rossii’ [‘Berdymukhamedov Refuses Help from Russia’], 2 February 2016, , accessed 12 December 2016. 34 Reuters, ‘Turkmeniya otritsaet intsidenty na granitse c Afghanistanom’ [‘Turkmenistan Denies Incidents on the Border with Afghanistan’], 16 October 2015. 31

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Turkmenistan shares a 750-km border with Afghanistan, which has been vulnerable to Taliban activity. Skirmishes between 2014 and 2016 have resulted in the deaths of Turkmen border guards.35 One of the most dramatic events took place in October 2015, when Afghan forces under the command of Vice-President Abdul Rashid Dostum reportedly chased Taliban militants from villages in the Hamyab district in northern Afghanistan. This forced the Taliban to take shelter on an island in the Amu Darya river, half of which belongs to Afghanistan and the other half to Turkmenistan.36 This not only brought the fighting in northern Afghanistan uncomfortably close to Turkmenistan territory, but also threatened the sustainability of Turkmenistan’s position of neutrality. Dostum said that the Turkmen authorities were aware of the situation, and he had hoped that they would help him fight the Taliban, but instead Ashgabat sent helicopters and border guards, pushing the fighters back into northern Afghanistan to clash with Dostum’s forces.37 In response to security threats on the border, Turkmenistan has built walls, dug ditches and established new border posts.38 A decree in October 2014 called up military reservists for retraining every three years to fill capacity in security – the decree came into force in early 2015.39 Given China’s interests along Turkmenistan’s border with Afghanistan, and Ashgabat’s relatively weak capacity, it seems likely that Beijing will eventually seek to play a more substantial role (if it is not doing so already).40 Shanghai Cooperation Organization ‘Peace Missions’ and Counterterrorism One of the most concrete demonstrations of security activity between China, Russia and the Central Asian states is the SCO Peace Missions, joint military counterterrorism exercises that simulate illegal border crossings, hostage rescues, recovering a hijacked plane and subduing ethnic conflict. They are often described as counterterrorism exercises, although the military hardware deployed is often beyond what would usually be expected. Some are bilateral efforts rather than involving all SCO members. For John C K Daly, ‘Amid Rising Regional Tensions, Turkmenistan Reevaluates Neutrality Policy’, Eurasia Daily Monitor (Vol. 12, No. 47, March 2015). 36 Bruce Pannier, ‘Afghan Fighting Reaches Turkmenistan’s Border’, Radio Free Europe/Radio Liberty, 23 October 2015. 37 Qishloq Ovozi, ‘Turkmenistan’s Afghan Policy Revealed’, Radio Free Europe/ Radio Liberty, 27 October 2015. 38 Qishloq Ovozi, ‘Turkmenistan’s New Afghan Border Policy’, Radio Free Europe/ Radio Liberty, 27 October 2015. 39 Gundogar News, ‘Vsekh pod ruzhyo? Ostavit, volno, otvet ne verniy!’ [‘Call to Service? At Ease, the Answer is Not Correct!’], 13 February 2015, , accessed 12 December 2016. 40 Very little accurate information is available about Turkmenistan’s security affairs. 35

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example, in 2006, China conducted the Vzaimodeystvie Peace Mission bilaterally with Tajikistan in the Kulyab region. In August 2013, China and Kyrgyzstan held bilateral Peace Mission exercises under the auspices of the SCO near their shared border, involving some 460 armed police from each side in a drill that aimed ‘to improve both countries’ abilities to cooperate in their response to terrorist threats’.41 The Peace Missions have multiple functions for China. They are one way for China to cooperate visibly with Central Asia in the security sphere and to help build capacity in neighbouring allies without alienating Russia. By doing this collectively with other members of a multilateral organisation, China reduces the risk of raising international suspicion of its mobilisation, in contrast to joint China–Russia military manoeuvres recently conducted in the South China Seas.42 During earlier SCO exercises, the interaction was largely seen as Russian displays of strength, and, to a cynical eye, a way of showing off military hardware to their customer base. However, more recent Peace Missions have enabled China to practise manoeuvres and use its new military hardware in a testing operational environment outside its borders. It is possible that China will start to use such exercises as a way of showing off its own hardware to potential customers. The news that Kazakhstan has chosen to purchase Chinese UAV technology, after it was deployed during the Peace Mission exercise, may indicate that such sales have already taken place.43 China is also showing increasing confidence in its participation and operational capacity, indicating its broader interest in stabilising the region. For example, the 2006 Vzaimodeystvie Peace Mission saw, for the first time, the People’s Liberation Army Air Force transport troops across the Chinese border.44 During the 2010 Peace Mission, China deployed air assets outside its territory for the first time, simulating the first long-range air strike in Kazakhstan from Ürümqi in Xinjiang. This was a test of China’s new fighter jets, enabling pilots to practise tactical ground support as well as inflight refuelling capability.45 The People’s Liberation Army demonstrated improved logistics and command and control, and more sophisticated weapons and tactics, potentially to deal with unrest in the

Xinhua, ‘China, Kyrgyzstan Hold Joint Anti-terror Exercises’, 13 August 2013. Xinhua, ‘China–Russia Start Joint Navy Drill in South China Sea’, 13 September 2016. 43 Fisher, ‘Kazakhstan Purchases Two Chinese Wing-Loong UCAVs’. 44 Asia Plus, , accessed 12 December 2016. 45 Martin Sieff, ‘SCO Exercises Wrap Up with Significant Advances in China’s Air Power’, Central Asia Newswire, , accessed 12 December 2016. 41 42

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region, particularly after the unrest in Kyrgyzstan in 2010.46 In 2014, during the Peace Mission exercise in Inner Mongolia Autonomous Region, China deployed its newest attack helicopters, battle tanks and UAVs during an exercise involving more than 7,000 troops.47 These same UAVs were later purchased by Kazakhstan. As with general security cooperation between China and Central Asia, border security and security of border regions has been an important focus of the Peace Missions. For example, China conducted bilateral exercises in 2002 with Kyrgyzstan, aimed at countering cross-border terrorist groups. This exercise reflected a longstanding priority in Chinese security concerns with its neighbour.48 In 2003, China, Kazakhstan, Kyrgyzstan, Russia and Tajikistan took part in joint exercises in the Kazakhstan border city Ucharal and Ili Kazakh Autonomous Prefecture in Xinjiang.49 Most importantly, the SCO has its own formal structure for coordinating counterterrorism efforts in the form of the Regional Anti-Terrorist Structure (RATS), based in Tashkent. It is largely dedicated to intelligence collection and sharing of information about suspected terrorists and terrorist organisations between member states. There is little information about how lists of suspect terrorists are compiled by the organisation, or on the specifics of how the organisation deals with terrorists. During a visit to the RATS Centre in October 2014, RUSI researchers were told that in addition to information sharing, cooperation on border controls was an area of interest for RATS, particularly in light of the NATO drawdown in Afghanistan. Work on addressing the internet as a tool for radicalisation, particularly in the context of Daesh (also known as the Islamic State of Iraq and Syria, ISIS), was also cited as part of RATS’s remit. This was an initiative that had been particularly championed under then Director of RATS Zhang Xinfeng (a security official from China’s Ministry of Public Security). When the researchers requested greater detail on historical cooperation through RATS, little was given. It is possible, of course, that this discretion was a product of operational sensitivities, but the representatives did say that RATS was more a coordinating body, as when it was created it was ‘not foreseen that it would be operational’ in focus.50 46 Richard Weitz, ‘China’s Growing Clout in the SCO: Peace Mission 2010’, Jamestown Foundation China Brief, 8 October 2010. 47 Associated Press, ‘China’s Military Shows Off its Newest Helicopters, Tanks in SCO Exercises’, 29 August 2014. 48 Christopher Bodeen, ‘China and Kyrgyzstan to Hold First-Ever Border Anti-Terrorist Exercises in October’, Associated Press, 17 October 2002. 49 Xinhua, ‘Backgrounder: SCO Anti-terror Military Drills’, 10 September 2010. 50 Authors’ interview with representatives at RATS, Tashkent, Uzbekistan, October 2014. The detail also reflected conversations one of the researchers had had at the centre two years earlier.

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This can sometimes lead to confusion as to what weight RATS has in actually countering terrorism. Following the attack on the Chinese Embassy in Bishkek, a senior Russian security official said that SCO ‘investigators’ were examining the circumstances of the attack,51 but it was not clear whether this official was referring to security services from each individual member state working together or to RATS’s operations. While China quite comfortably uses the SCO as an umbrella term to undertake its multilateral security efforts in Central Asia, it also has a sophisticated set of bilateral security engagements with Central Asia, both within and outside the SCO.

China’s Domestic Security: Are Political Strings Attached? Under the auspices of the SCO Peace Missions, China can prioritise domestic concerns. In May 2011 Kyrgyz, Tajik and Chinese counterterrorism forces undertook a joint exercise outside Kashgar in Xinjiang, testing their collective capabilities to interact with and address large groups of terrorists. Called TianShan 2, the exercise was carried out in the name of the SCO, but did not involve all members.52 The focus was to build up local capacity to help those countries manage problems that may ultimately resonate in China. Apart from counterterrorism Peace Missions, China also places great emphasis on the SCO provision for extradition of suspected terrorists, particularly Uighurs. The 2009 SCO Convention on Anti-Terrorism states that members can request the extradition of suspected terrorists from other members’ territory.53 Similar to its other engagements under the SCO, China has also established bilateral agreements with many of the Central Asian states. For example, in May 2015 Tajikistan and China signed a bilateral extradition agreement.54 Kazakhstan and Kyrgyzstan in particular have come under pressure to extradite Uighurs, given their substantial Uighur minority populations. Although the two states have generally been cooperative, given their sympathies with China’s concerns, the extraditions have often received international criticism. In 2011 Kazakhstan extradited Uighur schoolteacher Arshidin Israil, who had applied for refugee status in 2010. The World Uighur Congress Joshua Kucera, ‘SCO Investigating “Russian Traces” in Bishkek Chinese Embassy Attack’, Eurasianet, 13 September 2016. 52 Xinhua, ‘China, Kyrgyzstan, Tajikistan Conduct Joint Anti-Terror Drill’, 6 May 2011. 53 Afghanistan.ru, ‘ShOS i Afganisatan sozdali kontaktnuyu gruppu’ [‘SCO and Afghanistan Have Created a Contact Group’], 4 November 2005, , accessed 12 December 2016. 54 Radio Free Europe/Radio Liberty, ‘Tajik Lawmakers Back Tajik-Chinese Extradition Deal’, 20 May 2015. 51

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(a dissident group based outside China) claimed that, rather than for real terrorist activities, Israil was arrested for reporting on the July 2009 riots in Xinjiang.55 In 2014, eleven Uighurs from Xinjiang were shot dead by Kyrgyz border guards after crossing the border,56 an incident that confirmed a perspective found while talking to officials across the region that any demands by Beijing to address or mitigate Uighur threats in the region are dealt with promptly by authorities.

Regional Security: Heart of Asia, Afghanistan Afghanistan is another regional concern as China shares a border with it. During Taliban rule, Afghanistan housed Uighur militant groups. More recently, reporting and videos issued by the TIP indicate that a substantial body of fighters has now left bases in Pakistan to move back into Afghanistan. After the NATO intervention in Afghanistan in 2001, militant Uighurs in Afghanistan scattered to Pakistan, where they joined the numerous other militant groups (linked to Al-Qa’ida, the Taliban or the many other national clusters that used the permissive operating space offered by the Taliban as a base of operations) which had also fled. More recently, Pakistan has stepped up its offensive against insurgents at home through Operation Zarb-e-Azb (its major operation undertaken in 2016 to try to rid the country of the anti-state terrorist groups it faces) and some of the fighters have been pushed back into Afghanistan. The direct threat that groups like TIP pose to China may have been exaggerated by Beijing. There were reports that Uighur militants had pledged allegiance to Mullah Omar, then leader of the Taliban, and in doing so had accepted his demand not to launch attacks against China from Afghanistan.57 There is in fact evidence that the Taliban were keen to pursue direct economic relations with China prior to their fall. A report from September 2001 indicated how on the same day that Al-Qa’ida was striking New York and Washington, a Chinese delegation in Kabul was signing a memorandum of understanding with the Taliban’s ministry of mines. This built on previous visits by Chinese multinational telecommunications companies Huawei Technologies and ZTE, which had signed deals agreeing to provide mobile telephony service in Kabul and Kandahar.58 It seems Reuters, ‘China Confirms Extradited Uighur Facing Terror Charges’, 14 June 2011. Radio Free Asia, ‘11 Uyghurs Killed at Kyrgyzstan Border, Triggering Call for Probe’, 24 January 2014. 57 Brynjar Lia, Architect of Global Jihad: The Life of Al-Qaida Strategist Abu Mus‘ab Al-Suri (New York, NY: Columbia University Press, 2009). 58 John Pomfret, ‘China Strengthens Ties with Afghanistan’, Washington Post, 13 September 2001. 55 56

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therefore likely that the Taliban regime was aware of Chinese concerns with Uighur militancy and responded to them in an effort to maintain the potential for Chinese investment. The current regime in Afghanistan is equally aware of China’s concerns. The government in Kabul also shares the view that economic investment will help produce stability, a link that was made clear on a visit to Beijing in April 2016, when Afghanistan’s Deputy Foreign Minister Hekmat Khalil Karzai said: ‘An investment in Afghanistan now is an investment in the security of China’.59 Seen from Beijing, the security concerns with Afghanistan are similar to those that were visible during the period of Taliban rule. Principally, there are fears that Uighur militants (now apparently returned to Afghanistan) may use the territory as a base from which to launch attacks into China. Additionally, however, there is now also the concern that instability in Afghanistan may be contagious and exacerbate problems in Central Asia and Pakistan. This has potentially disastrous consequences for the broader BRI through the region. Beijing has played an increasingly active role in efforts to stabilise Afghanistan, acting as convenor between the Taliban and the Afghan government in peace talks, and demonstrating China’s ability to balance its engagement in the region.60 China is in a good position to act as mediator, given strong relations with most of the major actors involved, historical access to the Taliban, close ties with Pakistan (which served as mediator with the Taliban), as well as formal contacts with the government in Kabul. While the US–China relationship in the Asia-Pacific region is fraught with difficulties, the relationship in Afghanistan demonstrates China’s and the US’s ability to cooperate when confronting a common threat. This cooperation resulted in the establishment in January 2016 of the Quadrilateral Contact Group, bringing together Afghanistan, Pakistan, China and the US in an attempt to initiate peace talks between the Taliban and Kabul. This unprecedented Chinese engagement in a complicated peace negotiation reflects Beijing’s substantial concern about the security threats in Afghanistan and recognition that it has a role to play in such negotiations. China has also been active in broader multilateral approaches. In October 2014, Beijing hosted the 4th Istanbul Ministerial Process (the 59 Wang Qingyun, ‘Afghan Diplomat Looks to China for Greater Regional Security’, China Daily, 29 April 2016. 60 Kane Luo and Raffaello Pantucci, ‘Understanding the Cultural Fabric: The Missing Piece in China’s Outreach to Bring Peace in Afghanistan’, UK–China Strategic Communications Initiative, May 2015, .

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so-called ‘Heart of Asia’ process), a regional effort involving fourteen countries that encourages confidence- and peace-building measures focused on Afghanistan. Through the SCO, China has also been keen to promote closer engagement with Afghanistan, leading efforts to encourage SCO members to focus on the country. The protocol was signed in 2005 at the SCO headquarters in Beijing to create a contact group between the SCO and Afghanistan.61 Under China’s chairmanship of the SCO, at the 2012 SCO Summit in Beijing, Afghanistan’s status was upgraded, moving from contact group format to full observer,62 despite resistance from other members, such as Uzbekistan, that prefer to keep relations with Afghanistan bilateral. China has also used its presidency of the Conference on Interaction and Confidence-Building Measures in Asia (CICA), to try to focus regional efforts on Afghanistan. Showing to some degree China’s lack of confidence in the SCO’s ability to make progress on issues relating to Afghanistan and Central Asia, in 2016 Beijing initiated a new regional subgrouping in the form of the Quadrilateral Cooperation and Coordination Mechanism (QCCM) between Afghanistan, Pakistan, Tajikistan and China. Announced in March 2016 when People’s Liberation Army Chief of Staff Fang Fenghui visited Kabul,63 it held its first formal meeting in August 2016 in Ürümqi, where the army chiefs of staff of all four countries signed a joint statement on anti-terrorism and their future cooperation.64 Driven principally by the People’s Liberation Army, the QCCM appears to be an effort by China to refocus relevant regional security attention on Afghanistan, and an attempt by the People’s Liberation Army to start to play a more prominent relevant regional role in Afghanistan. By focusing single-mindedly on border security questions between the countries that cluster around the Wakhan Corridor – the narrow strip of territory in northeastern Afghanistan that extends to China and separates Tajikistan from Pakistan – the QCCM offers an interesting new format that also serves to illustrate the lack of confidence that Beijing has in the SCO, as well as to focus attention on a potentially immediate security gap along its border. Although these efforts are constructive, part of the challenge of many of these multilateral groups is that their weight and impact in Afghanistan is Afghanistan.ru, ‘ShOS i Afganisatan sozdali kontaktnuyu gruppu’ [‘SCO and Afghanistan Have Created a Contact Group’]. 62 Zhao Huasheng, ‘Afghanistan and China’s New Neighbourhood Diplomacy’, International Affairs (Vol. 92, No. 4, July 2016). 63 Afghanistan.ru, ‘ShOS i Afganisatan sozdali kontaktnuyu gruppu’ [’SCO and Afghanistan Have Created a Contact Group’]; Daily Outlook Aghanistan, ‘China to Extend $72m in Military Aid to Afghanistan’, 2 March 2016. 64 Ministry of National Defense, ‘Afghanistan, China, Pakistan, Tajikistan Issue Joint Statement on Anti-terrorism’, 4 August 2016. 61

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unclear. Little has been offered by way of any concrete SCO plan to help transform the country, while there is a tendency to default to a position that Afghanistan’s people and government should lead on solving Afghanistan’s problems. This was exemplified at the 2014 Dushanbe SCO Summit, when leaders stated they ‘supported the implementation of an Afghan-led and Afghan-owned reconciliation and reconstruction process, so as to turn Afghanistan into a self-reliant and amicable nation’.65 After a widely reported CICA Summit in Shanghai in 2014, during which Beijing diplomats championed their leaders’ keen engagement with the process, little more has been heard. Part of the challenge identified by Afghanistan is Pakistan. Afghanistan is aware of China’s influence over Pakistan and has requested that China assist more by using this influence. On a trip to Beijing in May 2016, Afghanistan’s Chief Executive Abdullah Abdullah stated that China could put more pressure on Pakistan to support the peace process in Afghanistan and prevent Taliban attacks.66 This is something that persistently comes up in discussions with Afghan experts and officials as well as Indian experts and officials, all of whom think China should exert more influence over Pakistan to change its behaviour in terms of supporting militants in Afghanistan. One representative of a think tank from Afghanistan said that China ‘must do more to leverage Pakistan’ on the question of militants.67 Additionally, Afghans will point to the fact that China has undertaken limited investments in their country as compared to the $46 billion that is being poured into Pakistan. So far, however, it is unclear how much China is able to force changes in Pakistani behaviour in this regard, with at least one Chinese expert in the RUSI New Delhi workshop asking members of the audience for ideas as to how they would achieve this change in behaviour. Apart from peace-building and reconciliation initiatives, China has also offered Afghanistan aid and training. On President Ashraf Ghani’s visit to China in October 2014 (the first formal foreign visit he undertook as leader), China promised an aid package of $330 million over the following three years to help stabilise the country, and also offered to train 3,000 Afghan personnel.68 Again, this is not a new initiative, but extended a promise made in 2012 by former senior leader of the CPC,

Xinhua, ‘SCO Members Support Afghan-Led Reconciliation Process’, 12 September 2014. 66 Alisher Shahir, ‘China’s Growing Presence in Afghanistan: From Economic Aids to Security Engagements’, Khabarnama, 7 August 2016. 67 Participant at RUSI-VIF New Delhi workshop, March 2016. 68 Michael Martina, ‘China Says Afghan President Vows to Help China Fight Militants’, Reuters, 29 October 2014. 65

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Zhou Yongkang, undertaking the first visit to Afghanistan by a senior Chinese leader in decades, to train 300 Afghan police. In June 2015, Beijing pledged security equipment and further training.69 This assistance is likely to increase, as China grows more concerned about a returning militant threat to Afghanistan, as well as the threat that instability poses to economic investment in the country and region. Economically, China sees Afghanistan as part of the BRI project, despite the fact that it tends not to be included in any maps that are issued. At the New Delhi workshop, one delegate from a Chinese economic think tank said the BRI constitutes a ‘long-term strategy – Afghanistan cannot be avoided’.70 There have been conferences held in Afghanistan on the SREB, and one of the first freight trains to leave from the Chinese city of Yiwu to Mazar-i-Sharif in Afghanistan departed in August 2016.71 China is one of the few foreign investors in Afghanistan whose economic push into Afghanistan predates the SREB announcement. China’s state-owned mining companies China Metallurgical Group Corporation and Jiangxi Copper won the contract to exploit the copper mine in Mes Aynak, southeast of Kabul, in 2007. This represented the largest single foreign investment in Afghanistan to date, at $4.4 billion.72 In 2011, CNPC partnered with Afghan company Watan Oil and Gas and secured the rights to three oil blocks in the Amu Darya basin in northwest Afghanistan. Chinese firms have also cooperated in tenders put out by multilateral development banks. For example, in 2013, stateowned Xinjiang Beixin Road and Bridge Group won a tender to build a new highway from Kabul to Jalalabad, financed by the ADB. These projects have all been problematic. The Mes Aynak project has stalled for a range of reasons, including a contractual dispute between the China Metallurgical Group Corporation and the Afghan government, the drop in copper price, which makes the project less economically viable, security concerns over potential attacks by Taliban insurgents nearby (and a misjudgement by the company of the costs of security), a lack of infrastructure to transport the copper out of the mine and poor project management – by both companies and the local Afghan authorities.73 President Ghani needs the revenue from the copper mine to fund Reuters, ‘China’s Xi Pledges Security Equipment, Training for Afghanistan’, 10 July 2015. 70 Authors’ interviews in Delhi and RUSI–VIF roundtable, March 2015. 71 Dawn.com, ‘Train Linking China to Afghanistan Leaves for Mazar’, 29 August 2016. 72 Erica Downs, ‘China Buys into Afghanistan’, SAIS REVIEW (Vol. 32, No. 2, Summer/Fall 2012). 73 Frank Jack Daniel and Mirwais Harroni, ‘Chinese Demands, Rebels and Buddhist Ruins Stall Afghan Copper Dream’, Reuters, 11 April 2015. 69

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development, and he has since agreed to raise the number of police guarding the site in an attempt to alleviate security concerns.74 In 2012, the CNPC project was disrupted after Chinese engineers came under attack from men loyal to Afghanistan’s Vice President Abdul Rashid Dostum who apparently had not been included in the deal that had been brokered by Watan Oil and Gas, a company linked to former Afghan President Hamid Karzai’s family – who are not dominant players in Afghanistan’s north.75 In 2013, the project stalled again, supposedly because there was no transit agreement in place to refine the oil, set to take place in Uzbekistan, given the lack of refinery capabilities in Afghanistan.76 Part of the deal in 2011 was that China would build Afghanistan’s first oil refinery, but this was to take place after the scale of the oil reserves was better known.77 Even the Kabul–Jalalabad Highway has faced problems. Insurgents attacked the workers’ camp several times as the project commenced, wounding Afghans and halting work temporarily. Xinjiang Beixin Road and Bridge Group also allegedly had to change its Afghanistan-based management due to poor oversight.78 China’s approach to Afghanistan is consistent with the ethos of the BRI: that economic development will facilitate political and social stability. However, it has been a particularly challenging environment for China to operate in, with the economic feasibility of projects, and the safety of workers and assets, often brought into question. As an additional measure, therefore, China has taken on a more proactive role in trying to help with peace efforts and has proven willing to work closely with the US. This demonstrates the importance for Beijing of tackling the problem of Afghanistan and a willingness to try different formats while also maintaining non-interference. China remains cautious. Given the US and NATO experience of direct intervention in Afghanistan, China still wishes to keep its distance, and so the degree to which Afghanistan will ultimately become a true beneficiary of the BRI vision, given the deteriorating security situation in the country, is currently unclear.

Ben Piven, ‘Chinese Company and Taliban Battle over Afghanistan’s Underground Riches’, Al Jazeera America, 11 July 2015. 75 Jessica Donati, ‘UPDATE 1 – Missing Refinery Deal Halts Landmark China-Afghan Oil Project’, Reuters, 18 August 2013. 76 Ibid. 77 Nick Bryant, ‘China’s Long Game in Afghanistan’, Lowy Interpreter, 8 February 2012. 78 Michael Martina and Mirwais Harooni, ‘Slow Road from Kabul Highlights China’s Challenge in Afghanistan’, Reuters, 22 November 2015. 74

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Regional Security: Pakistan As with Central Asia, China sees logic in developing the CPEC as a way of encouraging prosperity that will in turn help to stabilise both Xinjiang and Pakistan. Given that the CPEC runs from Kashgar to the ports of Karachi and Gwadar, it is a cross-country initiative for Pakistan. However, Pakistan is a country that has seen violence and instability pose real security threats nationally and internationally. Pakistan’s security situation has particular relevance to China. As militants were pushed out of Afghanistan in the wake of the US-led invasion following the 9/11 attacks, many of them – including Uighur fighters – relocated to Pakistan’s Waziristan region, with the leadership of the Taliban moving into neighbouring Balochistan. From their hideout in Waziristan, the Uighur militant group has released videos and declarations making threats against China and released videos praising incidents that have taken place in China, though they do not often claim responsibility.79 Instead they praise from a distance, leaving it unclear whether they have the actual capacity to launch such attacks inside China. Apart from militant groups that have in the past threatened attacks on Chinese territory, the feasibility of the CPEC is also threatened by Pakistan's domestic insurgency problem. The CPEC as currently designed passes through some of Pakistan’s most troubled areas, including the Federally Administered Tribal Areas in the northwest and Balochistan in the southwest. Both areas have histories of militancy from violent Islamist, sectarian or ethnic militias, as well as a serious problem from separatists in Balochistan. This poses an obvious threat to Chinese workers, as well as infrastructure that is being built in the regions. And these problems also have a geopolitical edge, with the earlier parts of the CPEC – those just across the border from China – passing through Gilgit-Baltistan, in northern Kashmir. This has raised concerns both from India (which claims authority over Kashmir and rejects any attempts to change the reality on the ground), as well as from the rest of Kashmir Pakistan, which hopes that by formally changing the status of the region (which has been purposely kept somewhat opaque) it will force some acknowledgement of the reality of contested Kashmir.80 Domestically, the CPEC has also stirred tensions between Pakistan’s internal regions. There have been numerous accusations that the project has in fact been steered in the interests of Prime Minister Nawaz Sharif, with major infrastructure allocated and prioritised in his home region of Saud Mehsud and Maria Golovnina, ‘From His Pakistan Hideout, Uighur Leader Vows Revenge on China’, Reuters, 14 March 2014. 80 Imtiaz Ahmad, ‘Pak–China Economic Corridor Problems Over Disputed Kashmir Region’, Hindustan Times, 11 January 2016. 79

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Punjab, bolstering the economy in that region over the rest of the country. This is something that many perceive will help him come election time given Punjab’s prominence as Pakistan’s most populous province. This has led to political spats that have complicated China’s ability to operate within Pakistan, and it has forced the Chinese Embassy to publicly push back on local claims that China has given preference to some regions in Pakistan over others through the CPEC. China has repeatedly stated that the project is intended to be all-encompassing and aimed at helping all of Pakistan – it is simply going to be implemented in various stages. China has faced fairly regular attacks on local workers and projects in Pakistan since the 9/11 attacks (and potentially earlier as well, although these have likely been under-reported), often with clear evidence that militant groups are purposely targeting Chinese operations. In March 2015, militants set five oil tankers on fire and abducted four local workers reportedly carrying fuel for a Chinese company working on the Saindak Copper Gold Project in Balochistan’s Chagai district. Police sources believed that the tankers were targeted specifically because they were supplying oil to a Chinese company.81 Pakistanis working on other Chinese projects have also been targeted. In September 2016, Reuters reported that 44 Pakistanis had been killed while working on the CPEC since 2014.82 Also in September 2016, a report in the Indian press suggested that two Chinese engineers had been killed by militants while working on the Dudher Zinc project in Hub district, Balochistan. The IED (improvised explosive device) attack on Chinese engineers was reportedly claimed by the Baloch Liberation Army (BLA) which said it was in response to Chinese and Pakistani connivance to ‘loot’ Baloch resources, demonstrating resentment against China’s development of the region. In a statement reportedly put out by its spokesman, the BLA criticised the CPEC, saying, ‘China is conning the international community with the exploitative project of [the] China Pakistan Economic Corridor on Baloch soil. The world knows about China’s intentions behind such a grandiose project’.83 The reliability of this report could not be further substantiated, but it did reflect a concern that is not uncommon in Pakistan.

Kiyya Baloch, ‘Chinese Operations in Balochistan Again Targeted by Militants’, The Diplomat, 27 March 2015. 82 Syed Raza Hassan, ‘Attacks Have Killed 44 Pakistanis Working on China Corridor since 2014’, Reuters, 8 September 2016. 83 Mayank Pratap Singh, ‘Baloch Rebels Attack Dudher Project Site, 2 Chinese Engineers Killed, Many Hurt’, India Today, 28 September 2016. It is worth pointing out that this report was provided with a byline in Balochistan, something that would presumably have been difficult for an Indian paper to reliably source. 81

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Chinese nationals have also been targeted for other reasons, at times simply because of their nationality and by groups which see them as foreigners bolstering a corrupt government. In 2006, a group of Chinese nationals were kidnapped by local Islamist students in Islamabad who accused them of prostitution. In February 2012, Hua Jing, a Chinese female travelling in Peshawar was shot and killed in the street in an attack claimed by the Pakistani Taliban as revenge for China’s engagement in the country.84 In May 2014 an adventurous Chinese cyclist, Hong Xudong, was kidnapped by militant groups which claimed to have targeted him for being Chinese and variously claimed to be a fragment of the Pakistani Taliban or a local criminal network. He was eventually released in August 2015 in what was described as ‘an intelligence operation’.85 These attacks against Chinese nationals, projects and interests increase the costs of China’s work on the CPEC. They also challenge the Chinese mantra that development will help to reduce political grievance and thus instability, suggesting that the Chinese presence may actually be exacerbating these issues. Concerns have been voiced by the Chinese, although mostly about how long it will take for the projects to be delivered. In August 2013, Lin Dajian, vice director general of the Department of International Cooperation in the NDRC, highlighted at the China–Afghanistan–Pakistan Track Two Dialogue ‘the security issues and challenges that could impede the speed of [the] project’.86 More recently, one of the more nationalist Chinese papers, the Global Times, remarked that ‘the increasing cost of security [is] becoming a big problem in efficiently pushing forward the projects’, and that ‘It is unlikely to be plain sailing for China and Pakistan’.87 In trying to mitigate these challenges, China has tried to get local Pakistani authorities to take on responsibility. However, this has led to unintended consequences. In response to the previously mentioned kidnapping of Chinese nationals in Islamabad in 2006, the Chinese government urged the government of then President Pervez Musharraf to rapidly resolve the situation. After some diplomacy the Chinese nationals were released, but, embarrassed by the standoff in 2007, Musharraf used the situation as an opportunity to clamp down aggressively on religious students, who had come from the Lal Masjid (Red Mosque) in Islamabad,

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Andrew Small, The China–Pakistan Axis (London: Hurst, 2015). BBC News, ‘Abducted Chinese Cyclist Hong Xudong Released in Pakistan’, 23 August 2015. 86 Nihao–Salaam, ‘Scholars from China and Pakistan Discuss Opportunities and Challenges of China Pakistan Economic Corridor’, 5 August 2013. 87 Hu Weijia, ‘Increased Ties with Southeast Asia Don’t Detract from China’s Goals in the CPEC’, Global Times, 13 September 2016. 85

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leading to a pitched battle at the mosque in Pakistan’s capital. For Musharraf, the mosque’s activity had been a persistent irritant, and the embarrassment caused by the incident with the Chinese nationals provided a good pretext to clamp down aggressively. Out of the ashes of the clash, the Tehrik-iTaliban Pakistan group emerged, which has developed into one of the more virulent anti-government groups that has been behind terrorist attacks throughout Pakistan, including a number specifically targeting Chinese nationals. In trying to specifically protect the CPEC, the Pakistani authorities have established a 12,000–15,000-strong garrison to act as a protective force for Chinese nationals working on CPEC projects.88 Based in Abbotabad, the brigade is supposed to focus specifically on the CPEC. Another partner for China provided by the Pakistani military is the Pakistani Frontier Works Organization, a military engineering company.89 This cooperation with the Pakistani Army has recently become the subject of political debate within Pakistan about the BRI. Victor Gao, a former Chinese Ministry of Foreign Affairs official, has said ‘on the Pakistan side there is uncertainty about which entity wants to take leadership or ownership of the corridor projects … there is a big debate internally over whether the government should take ownership or the military should take ownership. This is what is holding the whole thing up’.90 The China–Pakistan security relationship goes beyond simply the provision of security for the CPEC, extending to the purchase of high-end military platforms and the joint development of projects. Some of these may ultimately play a role in protecting the CPEC, but in many ways they are instead a reflection of the depth of the relationship between the two countries and show how China has a substantial hold over Pakistan. The development of Pakistan’s nuclear programme owes a lot to Chinese support. The two countries have been developing the JF-17 Thunder fighter jet since 1999. In April 2016, Air Marshal Muhammad Iqbal announced that by April 2017 a dual-seat JF-17B fighter jet would come into service.91 In October 2016, the China Shipbuilding Industry 88 Raza Khan, ‘15,000 Troops of Special Security Division to Protect CPEC Projects, Chinese Nationals’, Dawn.com, 12 August 2016; see also Zahid Gishkori, ‘Economic Corridor: 12,000-Strong Force to Guard Chinese Workers’, Express Tribune, 30 March 2015. 89 For further information see the website of the Frontier Works Orzanisation, . 90 Farhan Bokhari, ‘China Urges Pakistan to Give Army Lead Role in Silk Road Project’, Financial Times, 21 July 2016. 91 Matten Haider, ‘PAF Eyes Induction of JF-17B Fighter Jet by April 2017’, Dawn, 28 April 2016.

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Corporation confirmed the sale of eight attack submarines to Pakistan at a cost of $4–5 billion. Half of the submarines were to be built in Karachi, with the other four in China. The deal was announced by the company’s chairman Hu Wenming at a conference, which he declared aimed to continue the spirit generated by Chinese President Xi Jinping’s speeches on the Belt and Road Construction Work Symposium.92 Nevertheless, China has been visibly frustrated by internal disputes among policymakers in Islamabad, particularly over the route, which present additional obstacles to the progress of the CPEC. China is serious about the CPEC’s implementation and has invested considerable resources in a country that many observers consider a major security problem, both regionally and internationally. The importance of the CPEC has led some prominent Chinese specialists to believe that China will be forced to intervene if things go wrong and nationals’ lives are put at risk and particularly if they see the interference of outside forces, such as India. Hu Shisheng, director of the Institute of South and Southeast Asian and Oceanian Studies at the China Institutes of Contemporary International Relations, has said that although China has previously expressed concern about the CPEC route running through disputed territory with Kashmir, China would have ‘to get involved’ if any Indian ‘plot’ to disrupt the CPEC emerged.93 This rhetoric illustrates the difficulties that China sees, which involve local politics, local terrorism and militancy, and geopolitics. From a security perspective, the CPEC poses a particular complication for China’s bigger BRI vision.

A More Interventionist China? For China, security cooperation is aimed at providing stability at home and in its close neighbours that China hopes will not only assist in quelling unrest in Xinjiang, but also allow for a consistent climate for investment. With increased economic investment and greater emphasis on the need for those investments to enhance stability, will this mean a more interventionist China in the domestic security concerns of SREB and CPEC participating countries? The BRI has been announced against the backdrop of a globally more proactive China in terms of security questions. In 2015 China supported a UN peacekeeping mission in South Sudan and in 2013 sent medical staff,

92 The Nation, ‘China Confirms Sale of 8 Attack Submarines to Pakistan’, 16 October 2016. 93 Economic Times, ‘China will Intervene if India Creates Tension in Balochistan: Chinese Thinktank’, 29 August 2016.

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engineers, infantry and special forces to Mali.94 Rather than representing a desire to intervene politically in other countries’ affairs, China no doubt views these missions as more about being a ‘responsible power’, particularly in humanitarian crises. It is also no doubt motivated by commercial interests, particularly given China’s historical oil ties with South Sudan. A recurring recent theme of China’s foreign policy has been the protection of its citizens abroad. In 2011, Beijing evacuated 35,000 Chinese workers and expatriates from Libya. China also participated in a rescue mission in Yemen in 2015, helping to evacuate hundreds of Chinese nationals, as well as citizens of ten other nations.95 As Mathieu Duchâtel has noted, over the past decade China has changed its policy towards protecting nationals abroad and now ‘systematically intervenes’ to help nationals in trouble spots.96 This has already occurred in BRI countries (such as Kyrgyzstan), offering an acceptable form of intervention to China, and it is likely to increase if more Chinese nationals travel abroad to work on BRI projects in dangerous countries and find themselves in security situations. Beijing has, however, mainly relied on local authorities to deal with problems that occur in the SREB and CPEC regions, mostly because of relatively credible local partners who have the capacity to manage any challenges. However, they have reacted to protect their own citizens when state order disintegrates and the host country fails to respond quickly enough, such as in the 2010 conflict in southern Kyrgyzstan, which saw ethnic violence between Uzbek and Kyrgyz residents. The Chinese Embassy provided transport to evacuate Chinese nationals from the conflict zone,97 and Beijing airlifted almost 1,300 Chinese nationals, many of whom were operating businesses in Osh and Jalalabad.98 Chinese assistance, however, was not limited to Chinese citizens, with reports saying that China also helped evacuate citizens from Turkmenistan, Pakistan, Russia and Tajikistan who were stranded in

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Jonas Parello-Plesner and Mathieu Duchâtel, China’s Strong Arm: Protecting Citizens and Assets Abroad, IISS Adelphi Paper 451 (London: IISS and Routledge, May 2015). 95 Xinhua, ‘China Voice: Yemen Rescue Mission Demonstrates China’s Constructive Role’, 6 April 2015. 96 Jonas Parello-Plesner and Mathieu Duchâtel, ‘How Chinese Nationals Abroad are Transforming Beijing’s Foreign Policy’, Caixin Online, 19 June 2015. 97 Olivier Bräuner, ‘Baohuzai Jierjisisitan de Zhongguo Gongmin: 2010 nian Cheli Xingdong’ [‘Protecting Chinese Nationals in Kyrgyzstan: The 2010 Evacuation Operation’], Guoji Zhengzhi Yanjiu [International Politics Quarterly] (Vol. 2, 2013), pp. 30–35. 98 China Daily, ‘China Completes Evacuation of Nationals in Kyrgyzstan’, 17 June 2010.

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Kyrgyzstan. As a result, China opened a consulate in Osh as a more formal mechanism through which to assist Chinese nationals with any future problems, be they security or consular. Despite China intervening to evacuate bystanders to the violence in Kyrgyzstan, Beijing clearly had no appetite to launch further operations to halt or prevent more fighting. Kyrgyzstan naturally looked to Russia for help, but even this request was rejected, as the Russian government viewed it as an internal matter for the Kyrgyz government.99 That is not to say China may not sometimes provide support under the radar. Locals from around the country spoke in Dushanbe of Chinese soldiers entering Tajikistan in 2012 during clashes between Tajik government forces and an armed group in the semi-autonomous Gorno-Badakhshan region in the east, but these stories have not been supported by independent evidence. China has not yet publicly deployed forces outside its territory to directly help other countries’ responses to a security threat, or to protect BRI investment in the event that it is threatened. Beijing will certainly continue to support Chinese nationals in emergencies, and there are the beginnings of efforts to become more actively engaged in security provision beyond its direct borders – for example in its recent engagement in Tajikistan to provide border posts and guards for the border with Afghanistan.100 However, that is not to say that China would never consider specific scenarios where it might be more proactive. An interesting development has been a new counterterrorism law in China passed in 2015,101 Article 76 of which states that ‘Upon reaching an agreement with relevant nations and reporting to the State Council for approval, the State Council Public Security Department and National Security Department may assign people to leave the country on counter-terrorism missions’.102 Although the implementation procedure for this is still unclear, it hypothetically allows China, if it deems it necessary, to send security forces to directly address security threats that come under the heading of ‘counterterrorism’ outside of its borders. This leaves a door open for China that it might exploit if its direct national interests in the SREB or the CPEC are perceived as being under threat. China is aware of setting dangerous precedents that would unravel the foundations of its non-interference policy, and in addition Beijing is aware of taking too many steps on security that could risk alienating Russia, which has Relief Web, ‘Kyrgyzstan Asks Russia to Help Quell Ethnic Clashes’, 12 June 2010. Reuters, ‘China to Build Outposts for Tajik Guards on Tajikistan-Afghanistan Border’, 26 September 2016. 101 Ben Blanchard, ‘China Passes Controversial Counter-terrorism Law’, Reuters, 28 December 2015. 102 China Law Translate, ‘Counter-Terrorism Law’, 8 November 2014. 99

100

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always been dominant in security relations with the Central Asian states and knows it cannot compete with China’s growing economic influence. However, the more assets, investments and citizens China has abroad, the more time China will have to spend on thinking strategically about their security. That is not to say that protecting economic assets would necessarily violate the non-interference policy, but China will also wish to be more engaged in understanding broader domestic security risks in BRI participating countries that could flare into conflict and threaten Chinese interests. Wang Jisi, dean of international studies at Peking University, has advocated more involvement in regional security questions, saying that China ‘cannot stand idly by and watch what is happening beyond its Western borders’ if security breaks down.103 It is likely that China will tread carefully, focusing on its own interests and the ways in which it can cooperate with BRI countries to make them more secure, while trying to avoid getting involved in local politics, but it will increasingly find it has to extend its security footprint abroad. This may cause complications for China's posture and relations in other global contexts (like the East and South China Seas), but will be inevitable given the security contexts along parts of the BRI.

103 Wang Jisi, ‘China in the Middle’, American Interest (Vol. 10, No. 4, February 2015).

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As this paper has shown, the BRI, and in particular its more advanced land routes, the SREB and the CPEC, has deep roots that go back before President Xi Jinping’s announcements of the projects in 2013. It builds on a model that had been discussed and attempted before in Southeast Asia and Pakistan, but ultimately found its most effective outlet in Central Asia and back in Pakistan. Coming to power in 2012, Xi appears to have taken the strategy already underway in Central Asia and built on the equation that development equals stability to foster the BRI, an infrastructure and economic investment vision that was in part a domestic development strategy for China’s poorer western regions and also a way to encourage Chinese businesses to ‘Go Out’ more into the world. The BRI is partly an answer to domestic problems, but it also shows China establishing itself as a responsible player in global development. It is offered as a way to balance Beijing’s focus between land and sea, most clearly enunciated in Wang Jisi’s ‘march west’ (see Origins of the Belt and Road Initiative in Chapter I). Moreover, the SREB and the CPEC represent land routes over which the US has far less influence, adding a geopolitical gain to China’s position in the region. China’s growing economic displacement of other powers in the region has been an unfolding narrative for some time. The SREB and the CPEC simply give it a name. The initiative is also pitched as a solution to China’s economic slowdown and overcapacity, although the expectations of how much it can ‘fix’ some of the structural issues that have caused the economic slowdown are highly unlikely to be met. Infrastructure and connectivity development lies at the heart of the BRI, encompassing China’s view that they will bring local and regional prosperity, social contentment and in turn political stability. China has long been active in investing in Russia, Central Asia and South Asia, giving the BRI an existing baseline that adds to the project’s legitimacy. Railways, roads, SEZs, ports, pipelines, refineries, power plants, electricity lines and airports have all formed part of what China designates the SREB and the CPEC. In reality, these titles will now be catch-all terms for any investment China makes in the region, if not globally.

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Perceptions from the participating countries are generally positive, but also mixed with confusion as to what the BRI actually means and how it could impact their own position within China’s sphere of influence. China could have done more to consult and explain the vision to participating countries, particularly after the SREB and MSR visions were announced. However, what has alleviated concern over China's commitment is that China is serious about funding the initiative, supplementing old bilateral and multilateral funding mechanisms with a range of stakeholders, including national governments, foreign aid agencies and international financial institutions. It has also quickly fostered new bilateral and international financial institutions, some of which are dedicated to BRI financing, such as the Silk Road Fund, and some of which are separate but portrayed as facilitating financial development and integration along the BRI, such as the AIIB. The projects, however, are not without challenges. Security will be a key issue. Sentiments of Sinophobia and clashes between Chinese and local workers in Central Asia have been a problem. Serious concerns also pertain to militant attacks on Chinese infrastructure projects in Pakistan, as well as internal instability in Afghanistan. For some projects conditions are so unpredictable that companies find themselves unable to deliver, such as in the case of the Mes Aynak project in Afghanistan, which has been largely stalled since the contract was signed in 2007. China must try to engage with these challenges without completely or overtly contravening its long-held policy maxim of ‘non-interference’. The economic viability of some of the past projects that have laid the groundwork for the BRI has also been called into question. Although the soft loans that China agrees with countries in the region are intended to be paid back, it is often difficult to see how this will be possible for countries such as Tajikistan and Pakistan. Write-offs worth billions of dollars of loans will become more challenging if China’s economic slowdown persists, and the increasing debt exposure of participating countries risks further instability. The BRI could be a game-changer for Russia, Central Asia and South Asia. China has said it wishes to win the ‘hearts and minds’ of people in the countries along the intended BRI routes, but there is a bigger geopolitical narrative behind China’s surge across the region, which Beijing has yet to properly address. In part it is answering domestic problems, but it is also China trying to establish ways in which it can expand its influence as it sheds the previous foreign policy of ‘non-interference’. For some Chinese analysts it is a response to the US’s reassertion in the wider Pacific Ocean under the Asia Pivot, although the timings do not fit (the Asia Pivot’s roots go back much further than this). For others it is offered as a way to drag Beijing’s attention away from its fixation on Washington to show that it has important geopolitical relations elsewhere too. A similar analysis can be

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found in the US, where Washington has invested in the Asia Pivot and the Trans-Pacific Partnership trade deal, which aimed to refocus Washington’s attention on the economic prosperity and growth in Asia and away from the bleak situation in the Middle East. For those analysts, the BRI is an economic attempt by China to reassert its dominance across its seas to dent US influence. In this light, the BRI becomes the economic side of a growing military assertiveness with which China has been taking islands and demanding recognition of its claims in the South and East China Seas. Whatever the perspective, it has not been plain sailing for China. Afghanistan, for example, has been a textbook case of China finding it difficult to exert control that it would expect in order to assert influence and change behaviour. What Beijing does not appear to have factored in amply is the push back that it encounters as its economic surge washes across Eurasia. While China is to some degree able to overcome local governance hurdles through the force of massive economic weight and the absence of political criticism, the underlying problems of security, governance and lack of infrastructure in the region remain. Chinese nationals and companies have consistently been targeted by security threats across the region, and find themselves encountering some of the same corruption problems that Western companies have faced. This reality is offers Western partners an opportunity for engagement that should not be missed. While Beijing is becoming an increasingly assertive player in foreign and security policy in Central and South Asia, it is still unable to deliver behaviour change on the ground. In Afghanistan, China’s attempts to engage and play a role in the peace process have apparently borne some fruit in terms of bringing people to the table, but they do not seem to have resolved the problems in the country or progressed the conversation. China has been able to help broker meetings between the various groups, but does not have the ability to force them to resolve their differences. The Quadrilateral Contact Group1 (Afghanistan, Pakistan, China and the US) has met numerous times, but has not been able to deliver a peace deal. All of which serves to highlight the fact that China is increasingly facing the same difficulties that most powers have encountered when they have sought to engage in Afghanistan or more broadly in Central and South Asia. This offers a point of engagement and understanding between China and the West, as both try to address the same problems. For Beijing, Europe in particular is a natural ally and partner in engagement throughout the region as the power sitting at the other end of the SREB.

1 US Department of State, ‘Joint Press Release of the Quadrilateral Coordination Group on Afghan Peace and Reconciliation’, press release, 11 January 2016.

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And there is also the question of what this surge means for the relationship between China and Russia, and in particular how it is emblematic of a change in balance between the two. While it used to be a relationship that was relatively even, the power has gradually shifted to China and it is as yet unclear how this shift will resonate on the ground in Central Asia. The key questions are how is China going to manage becoming the most significant power in its own backyard, and how will it deal with the inevitable security and governance problems that will emerge? History has shown that China has often used Central Asia as a testing ground for new foreign and security policies, and it is possible that in finding solutions through Central Asia to the problems it is currently facing, these approaches may then be tested out elsewhere. Understanding how China manages its Eurasian Pivot may offer a vision of what future Chinese foreign policy will look like.

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About Whitehall Papers The Whitehall Paper series provides in-depth studies of specific developments, issues or themes in the field of national and international defence and security. Three Whitehall Papers are published each year. They reflect the highest standards of original research and analysis, and are invaluable background material for specialists and policymakers alike.

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