Chinese affairs in Central Asia: how crony capitalism is eroding justice

This essay is part of an ongoing research project on the business practices of Chinese companies and their effects on development in Central Asia. I am deeply indebted to my wonderful research assistants, Nur Myrzamurat and Haknazar Hallygylyjov in Kazakhstan and Almagul Aisarieva and Aybek Aytbaev in Kyrgyzstan. The fieldwork was made possible by a grant from the Kennan Institute at the Woodrow Wilson Center in Washington, DC

This article is part of a collaboration between the Foreign Policy Research Institute and the Oxus Society for Central Asian Affairs.

China’s economic influence in Central Asia took on a new character after President Xi Jinping came to power. In almost all economic activities, there is a growing Chinese presence, and these players range from large multinational corporations to small businesses. In a region of weak states and institutions, these actors are making their way and making their own rules. In order to facilitate their operations, Chinese companies are pursuing many strategies of buying political support, blocking local courts, damaging the environment without repercussions, and shorting out local entrepreneurs. Many cases that I observed during my research trip to the region in April 2019 demonstrate a new emerging governance with changing rules.

While corruption is not new, and companies have frequently colluded with officials to circumvent the law, China’s Belt and Road Initiative (BRI) is spreading crony capitalism to all corners of Central Asia. This system takes into account the interests of the political elites in the region through various mutually beneficial schemes. Any buffer against transparency is appreciated by both sides. All forms of Chinese businesses operate in the region and, unlike more advanced markets, they are subject to minimal regulation and often do not feel obligated to comply with local standards. Here, I look at three cases that illustrate different facets of Chinese business practices: the central heating installation in Bishkek, an environmental disaster in an oil field near Aktau, and outsourcing disputes in Bishkek and Osh.

The economies of Central Asia have drifted towards their big neighbor since their independence. China’s trade with the region has grown from $ 1.8 billion in 2000 to over $ 50 billion in 2018. While the region represents 0.8% of Chinese China’s imports and 0.9% of exports, China’s share of its imports and exports rose to 37% and 22% respectively in 2020. These figures do not fully reflect the significant variations between countries in the region. For example, Kazakhstan has the largest volume. Trade relations are also driven by China’s needs for natural resources, but trade does not fully reflect China’s growing ownership of mining, mineral and energy resources in the region. Chinese companies currently own a quarter of Kazakhstan’s oil production and account for well over half of Turkmenistan’s gas exports. These interests go far beyond oil and gas in the wholesale areas, the use of agricultural land and the relocation of old factories from China to the region. The Chinese state Eximbank is the largest creditor of Tajikistan and Kyrgyzstan, holding respectively 49 and 36% of their government debt.

One of the BRI’s first initiatives was the modernization of the obsolete Bishkek power station, which started in 2014, funded by a 20 year loan agreement between the Import-Export Bank of China and the Kyrgyz government. Tebian Electric Apparatus Stock Co. Ltd. (TBEA), headquartered in Xinjiang, won the $ 386 million contract. Work progressed slowly and funds were embezzled. Former Kyrgyz Prime Minister Sapar Isakov lobbied on behalf of the TBEA. Isakov and the mayor of Bishkek, Kubanychbek Kulmatov, were accused of having benefited financially from the company and were subsequently jailed for corruption. Although it is a private company, the TBEA website boasts of “actively practice the national strategy of the Belt and Road Initiative. “

Bishkek power station, and other proof wasted loans, endangers fragile economies and, as many feared in Kyrgyzstan, this depletes resources and amplifies corruption. When in debt, corrupt politicians give more rights to their creditors or sell for less. In another case, TBEA obtained a license to operate a gold mine without any national oversight in Tajikistan in exchange for the free construction of a power station. In addition, when it comes to dispute settlement and arbitration, Chinese companies take cases to international courts or resort to retaliation and threats, while local actors are often divided into various interest groups and devastated. by bitter political conflicts. This leaves little scope for pursuing the public interest. From my observations in Beijing, Chinese actors see Central Asia as a “wild west” that must be tamed. What a professor and political adviser in Beijing told me sums up this widely held view: “We need to be louder and show our teeth… we don’t want Central Asia to turn into a land of bandits. “

Chinese companies have no responsibility for environmental damage. A fire in the Kalamkas oil field near Aktau in 2019 was barely reported, and its causes are still obscure. None of the main owners, the Kazakh state-owned energy company KazMunayGas and the Chinese company CNPC, offered any explanation or comment on the damage caused by the fire and the oil spill. I met a group of engineers and academics at Yessenov University in Atyrau just weeks after the incident and they were furious at the unfettered access of Chinese companies and the continued environmental damage. “We drink artificial water, we eat imported food,” said a local resident who grew up in Aktau.

The problem is a general lack of accountability. There are many examples of weak legal protections for Kazakh interests against Chinese companies. A dispute has arisen between the Aktau Akimat (city government) and a Chinese supplier over a tender to change the city lights ahead of the Caspian Nations Summit in 2018. The company does not failed to deliver the contract on time, as a result Akimat notified the firm and terminated the contract a month before the summit. The Chinese side sued the Akimat and obtained damages, despite the fact that the termination was legal. According to a prosecutor I interviewed who dealt with cases involving Chinese companies, “in Kazakh courts, the Chinese win and order comes from above. Chinese businessmen know firsthand the level of corruption and the appetite of officials… The situation is very humiliating, they spit on us.

Kyrgyzstan has already received $ 700 million in loans from Chinese bank Exim to finance the completion of a highway under construction by the Beijing-based China Road and Bridge Corporation. The end date is now set for 2021. Most large projects are carried out by Chinese engineers and workers. Once a project is completed, road maintenance is a problem. Many small Kyrgyz businesses are struggling to survive, and Chinese road construction loans do not improve local technical capacity or enable the growth of contractors’ businesses. China uses its own domestic manufacturing overcapacity, which is more efficient in terms of management and financing for it. Yet there are also micro-realities of small business operations. For example, a Kyrgyz subcontractor that I know won a tender for the construction of a section of road in Bishkek on behalf of a Chinese company several years ago. Within six months, he went bankrupt because his share of the payment never arrived. To comply with the agreement, he took out a bank loan and only managed to complete part of the work. The Chinese company claimed to have paid the amount to its business partner, but it vehemently denied it. He feared for the future: “Chinese policy should give as much credit as possible and then ask the Kyrgyz government to repay at a high percentage.” Such sentiments are rife and protests against China have escalated in Kyrgyzstan, as well as in neighboring Kazakhstan, with 106 protests linked to China. checked in in both countries since 2018.

China is exporting its own version of authoritarian crony capitalism to developing countries. As the above cases show, the implications are many. These problems emerge in the form of growing macroeconomic indebtedness, a further collapse of the state under the sway of deeply corrupt and malleable elites, the disintegration of the weak bureaucracy and judiciary, and a demoralized society. Growing injustice in the distribution of resources, lack of accountability and social inequalities are increasing resentment and protest. What makes doing business with China particularly complex is the fact that all companies operate as an arm of state interests.

Yet China appears to further consolidate its influence through direct interference in succession policy when regimes become unstable. As Temur Umarov observes, relations with Chinese finance and companies are becoming increasingly important means of enrichment for many families and ruling groups in the region, and Beijing is using this map to strengthen China’s regional influence. In October 2020, Sadyr Japarov, who was backed by many China-related business players, replaced former President Sooronbay Jeenbekov in Kyrgyzstan in a popular uprising. This is not progress for democracy, just another reshuffle. Recent attacks on Chinese companies Myanmar and demonstrations condemning China’s tacit support for the military regime show that the stakes are very high. Events like these will reveal more of what lies behind the mask of “peaceful coexistence”.

The views expressed in this article are those of the author alone and do not necessarily reflect the position of the Foreign Policy Research Institute, a non-partisan organization that seeks to publish well-reasoned, policy-oriented articles on foreign and security policy. national American. priorities.