>> China’s Belt and Road project has triggered a surge in FDI in Central Asia in the past few years. There is more to come, writes Filip Rambousek.

FEB. 6 (The Conway Bulletin) – In 2018, Chinese foreign direct investment (FDI) in Central Asia, stemming from its global Belt and Road Initiative, is likely to continue to increase. Kazakhstan, where China has already built railways and a pipeline, can be especially optimistic.

2017 saw the first freight train arrive in the UK from China via Kazakhstan, and in 2018, we will likely see a gradual increase in traffic, as China looks to expand the Kazakh route by trading with Iran.

Increasing Chinese activity will also trigger geopolitical competition in the region. Japan has already announced its intention to increase freight traffic from South Korea through Kazakhstan to Europe to curb Chinese influence. Similarly, the US may be turning back to the region following the scaling down of its military operations in Afghanistan and closure of its military base in Kyrgyzstan four years ago.

At a meeting between Nazarbayev and Donald Trump in Washington this January, the two leaders reportedly signed deals for US investment in Kazakhstan worth more than $7.5b. This may not be military but it is a big commercial statement. The US will also continue to watch Uzbekistan, Central Asia’s most populous state and arguably biggest underachiever, as Pres. Shavkat Mirziyoyev’s reform programme seeks to attract Chinese investment to restore its economy.

Similarly, for Kyrgyzstan, Chinese FDI presents an attractive alternative to the Eurasian Economic Union (EEU). Promising better access to the Russian markets, the EEU has been an economic disappointment, serving primarily as a vehicle for Russian influence. Kyrgyzstan’s ambivalent relationship with the EEU is illustrative of Russia’s position in the region. While its cultural and political heritage remains compelling, the EEU cannot match the potential offered by China; even Kazakhstan’s move to the Latin alphabet is a step away from Russia, which will likely see its influence over Central Asian affairs beginning to diminish.

Nevertheless, for China, Central Asia is only a means to an end. Its investment may travel along Central Asian railways but provide no lasting benefit. Central Asian countries should use Chinese investment to kick-start their economies, and show that FDI investment in the region can make sense.

Opportunity may come to Central Asia, but optimists should also be cautious.

>>Filip Rambousek is a Russia and CIS analyst at the S-RM consultancy.

ENDS

— This story was first published on Feb. 6 2018 in issue 360 of The Conway Bulletin