China's Inadvertent Empire

From the issue

Although the SCO is a multilateral vehicle for Chinese regional engagement, it remains a largely empty institutional shell that may or may not become substantive. Prospects seem slim that it will accede to Beijing’s desire that it develop its economic profile. Meanwhile, none of its members, including China, seem willing to subordinate their diplomatic pursuits or security priorities to SCO goals, and even information sharing and collaboration outside of the narrow RATS mission is limited. But the SCO contributes to China’s inadvertent empire by providing a forum through which it can air ideas to its Central Asian neighbors and gauge the reaction of its most immediate geopolitical competitor in the region: Russia. In this sense, it is similar to China’s embassy in Bishkek. The SCO is preparing the ground for China’s future in Central Asia, even if Beijing has yet to decide what it thinks that future should be.

UNTIL THE middle of 2012, the SCO largely ignored the elephant in the Central Asian room: Afghanistan. In late 2011, when pressing Chinese think tankers in Beijing about a possible role for the SCO in a post-American Afghanistan, the authors received vociferous denials and detailed explanations about the SCO’s lack of capacity for such a daunting and complex challenge. Some member states, including China, had engaged on a bilateral basis with the United States and the Afghan government to provide humanitarian aid. The Northern Distribution Network, a NATO resupply program through Central Asia, involved some SCO governments in indirectly supporting U.S.-led efforts in Afghanistan, but the SCO as an organization maintained a studied reticence.

That all changed in June 2012 at the SCO’s twelfth summit for heads of state. Not only were the summit’s proceedings focused on Afghanistan’s future, but the former “dialogue partner” also was accepted as an official observer, a possible step toward membership. Observer status allows Afghan representatives to take part in SCO consultations at summits and other meetings. Chinese president Hu Jintao announced that the SCO should contribute to Afghanistan’s “peaceful reconstruction,” although Russia’s envoy to the summit emphasized the group would not assume responsibility for Afghan security. Underscoring the group’s inherent tensions, the $23 million aid package for Afghanistan announced at the summit was a bilateral agreement between Beijing and Kabul. Other member states announced their own limited bilateral assistance.

Beyond that, Hu Jintao and Afghan president Hamid Karzai signed a bilateral “strategic partnership” between their two countries. It provides for such things as Chinese investment and scholarships for Afghan students to study in China. The numbers involved are small, with Chinese imports from Afghanistan amounting to only $4.4 million in 2011. The aid pledged is part of an estimated $75 million that China has allocated for Afghanistan over the next five years. This pales in comparison to the $10 billion in development loans pledged to SCO member states at the June summit alone. Part of this reflects China’s general reluctance to disburse development aid abroad. The issue is controversial domestically, as large swaths of the country’s interior remain underdeveloped. But a continuing sense of uncertainty about what is going to happen next in Afghanistan is also a factor.

Chinese aid tends to stand in inverse proportion to the international investments of its SOEs. The world’s second-largest copper deposit at Mes Aynak was awarded to MCC in 2008 on a thirty-year lease. The tender was secured by offering the Afghan government a number of corollary benefits: generous 20 percent royalties on the copper extracted; plans to build a coal-fired four-hundred-megawatt power plant to serve the mine as well as Kabul; and provisions for building schools and transport infrastructure in the mine’s vicinity, including a railroad across the Afghan border to haul the copper to market. But, as far as could be determined through our research in Afghanistan, few if any of these plans have gone forward. China pulled back on earlier promises to develop a railroad to connect the site to possible markets. The extraction project was delayed, according to official reports, because 1500-year-old Buddhist ruins were found on the site. More likely the delays resulted from security concerns. MCC reportedly has established relationships with local leaders and militants to ensure the project’s safety, but it seems that the most prudent strategy is to assess what happens after U.S. combat forces withdraw in 2014.

In contrast, CNPC’s oil investment in the Amu Darya river basin in northern Afghanistan seems to be moving full speed ahead. The tender for twenty-five years of drilling rights also was won by offering generous 15 percent royalties on the oil and a 20 percent corporate tax on revenues. On top of this, 70 percent of profits will go to the Afghan government. CNPC also has revealed plans to build a small refinery to process the oil for domestic consumption, which currently is dependent on imports. The Afghan government soon may start seeing some of the estimated $300 million per year it expects. CNPC has moved at its customary lightning pace; production is set to begin in 2013. This is partly to do with the modest size of the project and its proximity to the surface. With an estimated eighty-seven million barrels of oil available, its reserves pale in comparison to Persian Gulf or Caspian fields. That’s why, as mentioned, speculation has mounted that CNPC’s long-term goal in the area is to exploit potential natural-gas reserves, part of massive formations across the border in Turkmenistan.

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April 18, 2014