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China and Russia vie for favor in Central Asia

CCentral Asia Top Brass is on tour. The presidents of the region’s former Soviet republics were in Moscow on May 9 and were invited as spectators to watch Vladimir Putin’s annual military parade.Ten days later, as GThe heads of seven countries gathered in Japan, and it was Xi Jinping’s turn to call the shots in Xi’an.In the first face-to-face meeting of a new group, China called C+COn Friday, he attracted five Central Asian leaders with a spate of investments, trade deals and knowledge transfers totaling $3.8 billion.

Central Asia has untapped natural gas and oil reserves, copper and uranium resources, and a 10,300-kilometer land border with China and Russia. Since the collapse of the Soviet Union, outreach to the region has taken over Beijing and Moscow. But Chinese officials have been particularly interested recently because of uncertainty in Afghanistan and the war in Ukraine. Security is at the top of Xi’an’s agenda, breaking a long-standing compromise in which the region’s armed forces are in lockstep with Moscow, while Beijing pulls the region’s financial muscle by funding mega-projects.

The award presented by Mr. Xi furthers efforts to strengthen China’s economic ties with Central Asia. Beijing is involved in more than 90 industrial projects in the region. Natural gas from Turkmenistan alone accounts for more than 70% of the country’s annual natural gas imports. According to Chinese official data, China will become Central Asia’s largest trading partner in 2022, and the import and export volume between the two sides will increase to US$70 billion, an increase of more than 40% year-on-year. By comparison, total trade between Russia and Central Asia is less than $40 billion.

Putin has stepped up his overtures, in part to push back against Xi. Russia has committed to substantial infrastructure investment. Competition to build transportation for the region’s natural resources, many of which are trapped underground, is especially fierce. In Xi’an, Xi proposed building a pipeline, the fourth of its kind, to carry gas from Kazakhstan, Turkmenistan and Uzbekistan to the east. Russia wants as much fuel as possible to flow through the borders of the Caspian Sea and the central pipeline system, which it has the power to open and close. In the words of one academic in Moscow, “It’s a silent confrontation.”

Putin’s diplomacy has other motives. It has no choice but to narrow the distance between Russia and its southern neighbors. The war in Ukraine has made Putin desperate to retain remaining allies, even as politicians in Central Asia avoid publicly supporting his invasion. Moscow has recently relied on Central Asia to circumvent sanctions.Central banks of Kazakhstan and Uzbekistan use gold and rubles to help settle what should have been used before the war fast, the Western system. Logistics bosses and customs officials receive Russian exports before they are transshipped to Europe. This intermediary trade accounts for 4-6% of Kyrgyzstan’s total trade. gross domestic product last year.

The result is that the economies of Central Asia are booming. The currencies of Kazakhstan, Tajikistan and Uzbekistan have risen against the dollar since the war began, bucking the trend in emerging markets.The multilateral institution EBRD predicts that a booming industry transporting Russian exports will help gross domestic product The region’s economy grew 5.2% this year, far exceeding expectations. Capital, companies and individuals fleeing Russia, many of them highly educated, will likely create a healthier 2024.

The frantic business has also sent wages skyrocketing. Annual real wage growth hit 10% in Uzbekistan and 7% in Kazakhstan in November, meaning workers in the region saw a bigger boost than workers in any other country G7 countries. Wealthy households will spend more on food and energy during Central Asia’s colder winters. Strong domestic demand has made it difficult for governments in the region to keep up. Kazakhstan and Uzbekistan both suspended gas exports in January and pledged to stop them entirely by 2025. Whoever wins the charm offensive to build new pipelines in Central Asia may find that there is no fuel available to fill them.

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