June 1st, 2011
02:35 PM ET

China's fraught investment in Central Asia

Editor's Note: Stephanie Pfeiffer is Master of Science candidate in Modern Chinese Studies at St. Antony's College, Oxford University. If you want your writing considered for CNN.com/GPS, please email the site's editor amar[dot]bakshi[at]turner.com.

By Stephanie Pfeiffer - Special to CNN

China is now looking abroad to invest its large holdings of foreign currency reserves as part of a multifold effort to acquire natural resources and improve its image as a benevolent business partner.

Where and in what manner China invests is of increasing interest to Western governments and companies because of the unique challenges arising from the competition.

What are the geopolitical ramifications of China’s “going out” strategy, whereby Chinese companies invest in road building, telecommunications and other infrastructure projects in exchange for rights to natural resources?

Despite the helpful injection of much-needed capital into developing economies, many question the long-term security implications of granting foreign firms the extraction rights to nonrenewable resources.

It is not only the state and state-run enterprises who may in the future suffer for the draining of their natural resources, but also the general population for whom benefits are scant as well.

Though profitable while supplies last, natural resource extraction does not boost employment or impart useful skills or knowledge to local employees, where locals are employed at all.

Besides criticism for using imported Chinese laborers, China’s economic ventures are also criticized for lack of transparency and poor quality standards. In many of the places where China is investing, however, people have neither the rights nor the means to fight these practices.

One challenge for the West is how to promote political reform in developing countries now that the Chinese Communist Party’s state-led reforms offer to some extent an authoritarian alternative for growth and poverty reduction.

Without the political and legal conditions that determine U.S. economic activity abroad, the Chinese “roads for resources” development strategy is popular in many politically repressive places. Central Asia is one such region where Chinese investment has global impact, through the rapid development of core industries and the shift in regional power relationships.

The formerly Soviet Central Asian republics (Kazakhstan, Uzbekistan, Turkmenistan, Kyrgystan, and Tajikistan) are an appealing destination for China’s investment due to their vast reserves of oil and natural gas and the relative safety of overland trade and transport.

Strategically located amidst Asia’s continental powers and prone to ethnic unrest that can also unsettle China’s diverse Xinjiang province, Central Asia serves a national security role for China as well.

China has promoted the formal institutionalization of security and economic partnerships in the region by creating the Shanghai Cooperation Organization - a framework through which Russia, China and the Central Asian states organize military intelligence exchange, financial aid, and development ventures.

This multilateral organization, at times internally compared to NATO, is an important indication of China’s attempt to prove to the world that it is dedicated to formally recognized diplomatic channels for solving sensitive political issues like terrorism and separatism.

A latent threat at their back door, China believes it can assure stability and prosperity in Central Asia through large low-interest loans and infrastructure investment. As in the African destinations for Chinese money, however, it is yet unclear how the local populations will benefit since the money goes mostly to oil companies and state-run banks.

Cognizant of the wariness with which the West watches China’s expanding resource appetite, Chinese government leaders view Asian regional integration and energy diversification as critical components of an overall energy security plan.

A network of oil and gas pipelines, many completed in the last several years and several more to open soon, will connect fuel supplies across the Eurasian continent from Russia’s Far East to China’s Xinjiang province to Kazakhstan, the Caspian Sea, and Iran.

Russia, in danger of losing its traditional sphere of influence to China’s campaign in Central Asia, favorably views the shift in oil consumption from West to East because it reduces Russia’s dependence on European markets and diversifies its own oil transport system.

State and corporate trade alliances do not address questions of peace and economic empowerment on the human level, however. The biggest challenge to China as it tries to create a pan-Eurasian economic community supported by governments intolerant of popular uprising is the distrust and suspicion among Russians, Kazakhs, Uzbeks, Tajiks, Indians, and many others, for the historically mighty Chinese population.

Support among Central Asian populations for China’s economic ventures there is contingent on more than oil pipelines and friendly relations with their authoritarian leaders. It requires China to show willingness to provide opportunities to the population for education and mobility. Whether China makes that effort in its own neighborhood is an important indicator of how well it understands and/or accepts the responsibilities that come with regional leadership.

The views expressed are solely those of Stephanie Pfeiffer.

Post by:
Topics: Central Asia • China • Economy

soundoff (22 Responses)
  1. RAJ

    One need to salute China for there determination and self-conviction to learn and progress rapidly by any means. It is there conviction in there ability brought them to the stage of great economic success. Psyche of Chinese leaders is to be no-1 Super Power and beat USA. China will do anything to reach to this level by helping poor countries, by exploiting poor countries with there money power. Super power status they misunderstood. Only money and military power cannot achieve this status. For that position they got to be sensitive towards other countries and neibouring giant India.

    June 1, 2011 at 3:48 pm | Reply
    • Maersk

      Just who gives a fork about those sensitive Indian diaperheads anyway?

      June 2, 2011 at 12:40 pm | Reply
      • Sagittarian

        Nobody F@#$ing cares abt you Nazis either.......Wise up Jack A@#

        June 5, 2011 at 10:51 am |
    • Joe Schoemaker

      No, no need to salute China for trying to rip everybody off.

      June 2, 2011 at 3:51 pm | Reply
      • Atanacio Luna

        We need to be more well reasoned, the world is moving fast due to new methods of comunication. simple patriatism is just that: anger, disdain, and blindness to reason. Functional democracy demands more than that from its members and supporters. Short of that we can become increasingly irrelevant thugs.

        June 4, 2011 at 12:07 pm |
      • Bianca

        Right, the ripping off should be left to us. Instead of giving the underdeveloped nations infrastructure, silly things like roads, ports, rail, why not do what we do: give them money in exchange for using their natural resources, and the money can then go into the local leaders fancy homes, cars, foreign bank accounts. Then they should do what we do, lavish them with IMF loans, so that they can pay for "civil society", "activists" and other enlightened people who can scream how their government sucks. So when one group in power becomes too uppity, they can be replaced by another. This is soo much better for them, do not they understand it?

        June 5, 2011 at 2:14 pm |
    • JM

      Yea. China will do anything to beat the US; were talking about lie cheat, steal, you name it. It finny though when say China many think we refer to the Chinese people but China is being refereed to a handful of people which dictate the rest. IT like a queen and army ants. I do believe china will eventually become a superpower but I don't think it will be stronger than the US. This is of course if the government will stay in tact. Sadly, democracy always prevails, its just a matter of time.

      June 2, 2011 at 7:42 pm | Reply
      • PETER

        You Got It.

        June 3, 2011 at 11:50 am |
      • The voice of the Rich

        American patriots are as sad as the Chinese patriots; they all believe the lies their governments told them.
        Democracy will fail because every candidate wants to see immediate improvement once they are elected. They often just implement short-term method compared to long term goals set by the Chinese elites. Under a Darwinian model, China is winning. It's amazing, 100 yrs ago China had fewer than 10 people who knew the mathmatic of calculus; and 70 yrs ago, they didnt even have warships or ability to make tanks or artillery and some of them even fought with swords against the Japanese. Now they have missile tech that reaches the world globally even into space and nuclear warheads, and all sorts of bombs that modern countries have. They have improved so much under the communist rule. That's the difference between being led by a few able elites and being led by the stupidity of the mass of people, most of whom only have GED and often likes the govt to tax the rich.

        In addition you have so many people being so angry towards communism while they would like the govt to tax the rich.
        And you have so many people blaming china for stealing your jobs when the truth is that Americans bring the jobs to them. The American employees are getting lazy and demanding so much from the employers. They want health care, pension, paid leaves and raises, making our products almost impossible to compete in a free market, and yet those American workers accusing the American companies of being greedy. No, the fat lazy American working class are being greedy and wanting so much from the employers.

        And dont wishfully think that the govt will tax the rich because the rich pay for their campaigns during election. The rich put them into office. It's the rich who made this country great and now the American working class want to pressure the govt to tax the rich? who are the commies here, i think it's the American working class.

        June 4, 2011 at 8:31 pm |
  2. Onesmallvoice

    This could be a very good thing if only the U.S.,Great Britain and France would pull their military forces out of the region,but unfortnately,they won't,sadly enough. These countries are too comsumed by their own greed and that's precisely why we're currently fighting these needless wars.

    June 1, 2011 at 5:00 pm | Reply
  3. j. von hettlingen

    It makes sense that China renews its ties to countries in Central Asia on the cost of Russia, which lost these territories after the fall of the Sovjet Union. Throughout history, Russia had treated the people in its backyard as second-class citizens. The region had always been neglected until natural resorces were discovered.
    Central Asia played an important role in history, as the ancient silk road linked Asia and Europe through trade. Apparently there are many historic sites on this route that are absolutely breathtaking and are worth a visit.
    I predict Central Asia would be a flashpoint in the near future, with China, Russia and India all trying to exert their influence over the region.

    June 1, 2011 at 6:20 pm | Reply
    • Dttan

      Dear stepahanie, How about BP, Shell, ExxonMobil, etc ? They also extract resources from developing countries ? Why don't you criticize them ? Why double standard ?

      June 1, 2011 at 7:23 pm | Reply
    • Bianca

      J. von hettlingen, what on earth are you talking about? You are a decade (at least) behind times. Central Asian countries, Kirgizstan, Tajikistan, Uzbekistan and Kazahstan are all members of Shangai Cooperation Organization, along with China and Russia. This is their UN, if you will. There are many projects under SCO umbrella, and just because the organization is very discreet, that does not mean ineffective. Russia and China are cooperating in Central Asia, and that can be seen in energy and infrastructure. The whole notion that Russia and China are competing there is silly.

      June 5, 2011 at 2:21 pm | Reply
  4. Konker

    "Though profitable while supplies last, natural resource extraction does not boost employment or impart useful skills or knowledge to local employees, where locals are employed at all."

    That's nonsense. Tell that to the mining and gas companies that employ extremely qualified expert technical and managerial staff. Natural resource extraction is one of the most technically sophisticated industries there is. How about the finance and service sector that supports natural resource extraction? Does it mean that Scottish, Norwegian, Australian, Texan economies have no useful skills imparted to them and that their employment has not been boosted? Please provide data to say that employment has not been boosted in those places and that no useful skills are built. If there, why not China, Russia and Central Asia? What are the alternative high skilled industries you might suggest? Tourism? Factory production?

    June 1, 2011 at 9:43 pm | Reply
    • MannyHM

      The locals who are displaced really suffer. They don't have a powerful voice and they're taken for granted as if they don't exist at all. I wish the people who actually benefit from the mining live near that place and see for the damage, breathe the air, and grow their food there.

      June 3, 2011 at 2:07 pm | Reply
  5. ram

    While the west was waging billion dollar wars in the world in order to gain resources and show their power and might, the chinese, indians, iranians et other non-aligned countries were busy making friends, saving the cash and negotiating fantastic deals in Africa, South America and Asia itself. It was an american economist, I think it was Sir Kenneth Galbraith, that stated "There cannot be a period of investment unless it is preceded by a period of savings" Keep the wars going, O wild west and allow a communist country to surpass you, your market economy and democracy. For the last 5 years I was impressed with the number of trade missions the Iranian Foreign minister, Motakki, made to countries across the world. He brought friendship while others in the west brought shock and awe and no flight zone and oops we are sorry we killed 28 civilians, it wouldnt happen again. Peace brother!

    June 3, 2011 at 12:45 am | Reply
  6. Squanky

    Amen ram

    June 3, 2011 at 1:43 pm | Reply
  7. Truth

    How would the Global Public Square cover the same story if all the success story was to be credited to the US?
    Yes, we would be reading about the majesty of Capitalism and the creativity of Wallstreet. I consider such an article as envy report by a journalist who possibly is used to a bonus from Wallsteet.

    June 3, 2011 at 4:55 pm | Reply
  8. The voice of the Rich

    The voice of the Rich

    American patriots are as sad as the Chinese patriots; they all believe the lies their governments told them.
    Democracy will fail because every candidate wants to see immediate improvement once they are elected. They often just implement short-term method compared to long term goals set by the Chinese elites. Under a Darwinian model, China is winning. It's amazing, 100 yrs ago China had fewer than 10 people who knew the mathmatic of calculus; and 70 yrs ago, they didnt even have warships or ability to make tanks or artillery and some of them even fought with swords against the Japanese. Now they have missile tech that reaches the world globally even into space and nuclear warheads, and all sorts of bombs that modern countries have. They have improved so much under the communist rule. That's the difference between being led by a few able elites and being led by the stupidity of the mass of people, most of whom only have GED and often likes the govt to tax the rich.

    In addition you have so many people being so angry towards communism while they would like the govt to tax the rich.
    And you have so many people blaming china for stealing your jobs when the truth is that Americans bring the jobs to them. The American employees are getting lazy and demanding so much from the employers. They want health care, pension, paid leaves and raises, making our products almost impossible to compete in a free market, and yet those American workers accusing the American companies of being greedy. No, the fat lazy American working class are being greedy and wanting so much from the employers.

    And dont wishfully think that the govt will tax the rich because the rich pay for their campaigns during election. The rich put them into office. It's the rich who made this country great and now the American working class want to pressure the govt to tax the rich? who are the commies here, i think it's the American working class.

    June 4, 2011 at 8:32 pm | Reply
  9. Roman Gil

    What Economic Recovery? Let's Get Doped Into Foreign Affairs to Forget the Failing Economy.

    In May, the American economy added the insignificant number of 38,000 jobs. America is overpopulated with over 311 million people (nobody knows how many illegal aliens) and cannot support its own population, but millions of new illegal and legal immigrants arrive each year. There is no industrial plan to bring back the millions of jobs and industries that global corporations exported and continue to export.
    My blog has solutions.

    According to the US government's own statistics, 36% of men 16 to 64 years old are out of the work force. Most don't count because they are not looking for work. It takes money to look for work, after a while people vanish from the unemployment statistics.

    In my blog, I loaded George Washington's "Farewell Address" advising America. I highlighted the parts that we are violating. Communist China is following this advice and we are committing the folly of ignoring it. My blog contains solutions to our problems that the politicians have failed to implement.

    While we drop bombs in Muslim countries financed with debt money, the Communist Chinese announced that they are buying large amounts of European government debt and that they opened a direct railroad linking China with Antwerp, Belgium in Western Europe. Europe is now China’s largest market. Europe is now globalized like America with their global corporations exporting their industrial base to China. Last year China announced that they have a controlling interest in Iraqi oil and are receiving oil from their Iraqi oil fields. The Communists understand capitalism better than we do and that economic power controls governments.

    In the USA, only 9% of the economy is industrial. 76% of the jobs created during the "recovery" pay $9 or less per hour with little or no benefits. 47% of American households are too poor to pay income taxes. The Federal Government must beg and borrow $1.65 trillion dollars this year. Many States and local governments are bankrupt. Local Property taxes are crushing the middle class in many States invaded by illegal aliens. Their children consume Medicaid and school services. Bankrupt States like New York have dumped welfare Medicare costs on the counties.

    In Europe from Spain to Greece, people are protesting that they have no future because there are no jobs. Europe like America exported its industrial base to China and Third World cheap labor countries. European governments are as deep in debt as America and their economies are failing under globalization.

    Obama got us involved into a third Muslim war to get us deeper into the Israeli-Muslim conflict that caused us to inherit Israel's enemies. The "war of Terror" has cost us in ten years $5 trillion dollars and now a powerful special interest group of war contractors will keep a permanent debt financed war going until we are in debt slavery.

    Roman Gil

    http://roman-gil1.blogspot.com

    June 4, 2011 at 10:43 pm | Reply
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