Kyrgyzstan: Is Chinese Investment Really Win-Win?

Kyrgyzstan: Is Chinese Investment Really Win-Win?
OpenClipart-Vectors / Pixabay
Kyrgyzstan: Is Chinese Investment Really Win-Win?
Source: Pixabay

With Westerners now leery of investing in Kyrgyzstan, it is perhaps inevitable that officials in Bishkek turn to China as they try to attract capital for infrastructure development. Beijing professes a desire to help Kyrgyzstan without setting conditions on assistance. Yet, as some Kyrgyz experts note, there are still sovereignty concerns connected to forging closer economic ties to China.

Uncertainty in the mining sector, most notably the government’s continuing efforts to change the terms for foreign investors at the Kumtor gold mine, has dampened enthusiasm among Western companies for investing in Kyrgyzstan. In the Fund for Peace’s 2013 Failed States Index, Kyrgyzstan fell squarely in the “warning” column, ranking 48th out of the 178 countries surveyed. Only Uzbekistan (ranked 44th in the survey) was deemed to be more unstable among the five countries comprising formerly Soviet Central Asia.

Western wariness was on display during a recent two-day, government-sponsored investment conference in Bishkek on July 10-11. A joint statement released by representatives of 40 foreign aid agencies and multilateral organizations, issued in response to a government appeal for various infrastructure development projects worth about $5 billion, noted that donors were willing to earmark almost $2 billion in “potential resources” to develop Kyrgyzstan’s troubled economy over the next four years. But it also reminded Kyrgyz policymakers of a need to cultivate “efficient institutions” and trim state expenditures.

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China notably did not send a delegation to the investment conference. But on July 15, Chinese Foreign Minister Wang Yi visited Bishkek and offered a glowing appraisal of Kyrgyz-Chinese bilateral relations. Chinese investment – now up to $1.7 billion since Kyrgyzstan gained independence in 1991 – will always be free of “additional conditions” and undertaken on the basis of “equal partnership,” Wang told local journalists.

China’s apparent willingness to extend no-strings-attached assistance is a source of hope for some Kyrgyz. But others suspect China of being more of a loan shark than a friend, and worry that Kyrgyzstan’s sovereignty could be at risk if the country becomes too indebted to Beijing.

“China can offer Kyrgyzstan significantly more investment than all the other donors put together,” said Valentin Bogatyrev, the coordinator of Perspective, a Bishkek-based think tank. He cited strong bilateral relations, mutual membership in the Shanghai Cooperation Organization and geographic proximity as the main reasons for China’s strong position in Kyrgyzstan.

Bogatyrev went on to note that heavy Chinese investment would lead naturally to Kyrgyzstan’s “broader political and economic dependence,” which, in turn, could create risks for the Kyrgyz government. First and foremost, Kyrgyz officials could face localized backlashes against the “uncontrollable shipping in” of Chinese laborers to work on infrastructure projects. In an illustration of this point, government officials working in tandem with youth organizations recently claimed that up to 970 Chinese were working illegally building a vital oil refinery in the western Kyrgyz town of Kara-Balta.

China’s interest in its small Central Asian neighbour should be primarily seen through the prism of Beijing’s desire to promote stability in its own restive and adjacent Xinjiang province, says Li Lifan, Associate Research Professor at Shanghai Academy of Social Sciences. By investing in keystone infrastructure projects in Kyrgyzstan, China “has committed to make its own [internal] development of more benefit to neighboring countries,” Li told via email.

Another thorny issue for the Kyrgyz government – which already is over-committed on annual budget revenues of roughly $2 billion –is how to repay China. Li raised the possibility of barter arrangements in which repayment comes in the form of mineral concessions and long-term leases of agricultural lands. Such arrangements would fit in with Beijing’s “global economic model”, Li noted.

Such deals would be sure to give many pause in Kyrgyzstan, where mineral wealth is modest, but jealously guarded. Chinese firms already have grappled with localized mob violence, as well as sniping from Kyrgyz-language media outlets. For instance, some media outlets have portrayed Ishtamberdy, a Chinese-operated gold deposit in the south of the country, as a knockdown concession for Chinese infrastructural assistance carried out in 2006. In 2011, ex- Kyrgyz Prime Minister Omurbek Babanov came under fire for suggesting mineral concessions as a means of paying for the Kyrgyz section of a controversial railway link seeking to connect China to neighbouring Uzbekistan via Kyrgyzstan.

In a novel example of Chinese collection methods, the Kyrgyz news agency reported on July 15 that the Kyrgyz State Prosecutor’s Office was opposing a deal struck between Beijing Construction Engineering Group International (BCEG) and the Kyrgyz Ministry of Interior. The Chinese state-owned firm was set to install speed cameras along sections of the roads connecting Bishkek to the southern city of Osh and the north-eastern town of Karakol. The two sides agreed that BCEG would collect speeding fines from motorists caught via the cameras until it recouped its investment.

“Collecting fines is the exclusive competence of the state organs,” the State Prosecutor’s Office complained in the July 15 statement, adding it had recommended the government annul the contract.

As long as Western investors remain cautious about Kyrgyzstan — where, according to Economy Minister Temir Sariyev, the budget loses $700 million annually through corruption — Bishkek appears to have little choice but increase its reliance on China for investment. “It isn’t that there is no investment out there, it is that conditions in the country don’t allow for its attraction and effective use,” Bogatyrev said.

Editor’s note: Chris Rickleton is a Bishkek-based journalist.

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