Chinese and Indian Investment in South and Central Asia is Good for Washington

Chinese and Indian Investment in South and Central Asia is Good for Washington

The United States is increasingly on the outside looking in as China — and India — invest across South and Central Asia. And that’s a good thing for Washington.

On April 20, Chinese President Xi Jinping received a hero’s welcome in Islamabad. It’s easy to understand why.

He was in town to announce a bonanza of infrastructure projects for Pakistan. These were not run-of-the-mill road-and-bridge affairs. They included a port, an airport, a gas pipeline, and a nearly 2,000-kilometer railway. The price tag was $46 billion, equivalent to about 20 percent of Pakistan’s annual GDP. The sheer scale suggests nation-building — not development assistance.

China is not funding these projects as an act of charity; it is doing so to serve its strategic interests. Beijing wishes to establish a direct trade link with the Middle East and Europe. The new China-Pakistan Economic Corridor, envisioned to stretch from the port of Gwadar, off the southern coast of Pakistan, to Xinjiang in western China, will be the land component of this envisioned trade route.

The Pakistan projects represent only one dimension of China’s investment binge in the region. In Afghanistan, China boasts a $3 billion contract to exploit coal resources and the rights to develop oil fields. It is scouring the Indian Ocean Region for energy assets. And further afield, it has established a fund of nearly $20 billion to provide financing for railways, roads, and pipelines across Central Asia.

India is also investing across the broader region, albeit on a more modest scale. Central Asia is a key target. State-owned Indian hydrocarbon companies, often in partnership with private Indian energy companies, are scoping out the region and sometimes signing deals.

In Central Asia, India wants to carve out influence in a region where China has long enjoyed a strong presence. Above all, however, it wants energy. Accessing this gas-rich region is no easy task. India does not share a border with any Central Asian nation, and its access is further constrained by Pakistan’s refusal to grant transit trade rights. Additionally, an envisioned pipeline that would bring gas to India from Turkmenistan (via Afghanistan and Pakistan) remains aspirational.

To gain better access to Central Asia — and to Afghanistan as well — India has pledged to provide financial support to develop the port in Chabahar, Iran. India envisions this port, located on Iran’s southern coast, as a gateway to a region that it cannot access via Pakistan to the east. Just as Beijing wants to use Pakistan (and the port it is building in Gwadar) as a land route linking the Middle East to China, New Delhi wants to use Iran (and Chabahar, only 40 miles from Gwadar) as a land route to Afghanistan and the Caucuses.

In this story of Indian and Chinese investment in South and Central Asian countries, the United States is conspicuously missing in action. Nowhere is this more starkly apparent than in Pakistan. The $46 billion committed by China this week far exceeds the $1.5 billion in economic assistance that the United States — one of Pakistan’s most generous bilateral donors — authorized between 2009 and 2014.

Meanwhile, the U.S. government has articulated its vision for a “New Silk Road” initiative. It involves developing trade links in Afghanistan and its environs through the establishment of roads and other integrative infrastructure. So far, however, this plan remains largely theoretical. Tellingly, several months ago, during a Wilson Center-sponsored public discussion about the New Silk Road initiative, Central Asians in attendance bluntly stated that high-level American government engagement with their countries is sorely lacking.

One may argue that at a time when the United States insists it is “rebalancing” to Asia, Washington should be worried about its inability to compete economically with other powers, most notably China, in key areas of the region — and especially given the rise of the China-led Asian Infrastructure Investment Bank (AIIB). The U.S. government views this institution as a direct competitor to the World Bank — and by extension to the United States itself, given that an American typically serves as World Bank president. The AIIB could become a dynamic new source of financing for infrastructure projects across South and Central Asia.

Ultimately, however, Washington need not be concerned. This is because the investments of China and India in the broader region are meant to achieve the same outcomes sought by the United States: development and stability.

The China-Pakistan Economic Corridor and Beijing’s broader investments in South and Central Asia are meant not just to bolster China’s economy, but also to stimulate greater connectivity and commerce in one of the world’s least integrated regions. This is the explicit goal of Washington’s New Silk Road Initiative as well. Washington wants infrastructure investments to strengthen trade, bolster economic development, and ultimately forge stability — particularly in Afghanistan, where U.S. forces are no longer fighting.

China is taking numerous measures to promote stability. Amid rising concerns about the security of its investments in Afghanistan, Beijing is helping lead a new push for reconciliation talks between the Taliban and the Afghan government to end a war that few believe can be won militarily. Additionally, when Xi was in Pakistan, he (and Pakistani Prime Minister Nawaz Sharif) underscored the importance of maintaining the current warming period in Afghanistan-Pakistan relations. China has also implored Pakistan — as it has done repeatedly in recent years — to crack down on militant sanctuaries in Pakistan’s tribal areas, which Beijing believes are used as staging grounds by Uighur militants for attacks on China.

These Chinese steps make good sense. Building an immense economic corridor across western Pakistan will be a tall order so long as bordering Afghanistan — and the Afghan-Pakistan border — remains afflicted by instability.

India, meanwhile, has concluded a military training agreement with Uzbekistan. This is a country that has produced not only ample energy resources, but also the Islamic Movement of Uzbekistan, a jihadi terror group with al-Qaeda ties that regularly carries out attacks with the Taliban in Pakistan and Afghanistan, including some that have targeted Indians and Americans. In effect, India’s Central Asia outreach features countermilitancy as well as energy security goals.

For Washington, perhaps the most problematic target of the China-India investment campaign is Iran. And yet here, outcomes can be highly beneficial for U.S. interests. China has agreed to fund the Pakistani portion of an Iran-Pakistan gas pipeline. If completed, this project would generate roughly 4,500 megawatts of power — about four times what U.S. investments in Pakistan’s energy sector have produced in recent years. Pakistan suffers from a destabilizing energy crisis, and the pipeline would help ease it. Meanwhile, India’s development of Chabahar port could provide a big boost to Afghanistan’s sputtering economy. According to Afghan government estimates, a fully operational port could generate trade volumes for Afghanistan totaling billions of dollars. These Iran-focused investments are likely to intensify now that Washington and Tehran have concluded a preliminary deal on Iran’s nuclear program.

In effect, the United States can enjoy a free ride off the efforts of China and India — but only if they bear fruit. And that is a big “if.”

Despite the pomp and circumstance and happy talk accompanying Xi’s recent announcements in Pakistan, many challenges loom. One is insecurity in Baluchistan, where many of the Chinese investments will be centered. This province is home to a separatist insurgency fuelled in part by grievances that local resources are inequitably exploited by the Pakistani state. The idea of China, at the invitation of Islamabad, setting up shop to build ports, airports, roads, and railroads will not sit well with local communities (and helps explain why Islamabad will provide 10,000 troops to protect Chinese workers). Additionally, China might pull back if it believes Pakistan is not making sufficient progress dealing with Uighur militants. China is known to play tough with Pakistan. It has rebuffed Pakistani requests for bailouts, and in recent weeks, quietly withdrew support for six coal projects in Baluchistan, citing insufficient infrastructure.

Meanwhile, India’s investments in Chabahar could lose momentum in the event of setbacks in U.S.-Iran nuclear negotiations. Even now, India will be hesitant to ramp up its economic activities in Iran so long as U.S. sanctions remain in place.

Nonetheless, setting these factors aside, Washington can rest easy as Asia’s two chief rising powers open their wallets in one of the world’s most strategic regions.

 

 

[The article also appeared in Foreign Policy.] [Photo: Pak Armed Forces]

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