Earlier this year, before the pandemic hit Central Asia, the Davis Center hosted a talk about China’s Belt and Road Initiative in the region by Dirk van der Kley. It was based on a thorough multiyear study drawing on findings of field research in Kazakhstan, Kyrgyzstan, and Tajikistan. The presentation gave an overview of Chinese investments over the years, and disbanded or challenged some "conventional wisdoms."
- Over the last four years, we have seen three changes in the economic activities that China undertakes in Central Asia: 1) a significant drop in government-to-government lending; 2) a growth in investments that provide exports, create budgetary revenues through tax, and create jobs; 3) in the bigger countries of the region, Kazakhstan and Uzbekistan, an increase in joint financing of projects.
- EXIM Bank lending to Tajikistan and Kyrgyzstan has dropped off a cliff or is about to drop off a cliff. In Kazakhstan, we've seen a significant drop in government-to-government lending as well. Uzbekistan is a slight outlier, because it is a latecomer.
- Recipient countries now welcome Chinese investments in industrial projects.
- While the business environment in Central Asian countries remains problematic, there are many companies in China that find working in Kyrgyzstan and Tajikistan attractive due to low labor costs and low competition. In Tajikistan, companies have to deal with government pressures, and in Kyrgyzstan, the biggest challenge is the local protests hindering or blocking the projects.
- We see a trend of localization of labor in Chinese projects. Given that Chinese labor is more expensive, companies increasingly invest in training local people. (More in van der Kley' "Chinese companies localization in Kyrgyzstan and Tajikistan.")
- While the debt of Tajikistan and Kyrgyzstan to China is substantial, unless something big happens (the event took place prior to the COVID-19 outbreak in the region), they are comfortably prepared to pay it off. If there is a big fluctuation in USD exchange rate, they will be in trouble. Kazakhstan’s debt to China is low and going down. Uzbekistan’s debt has been rapidly increasingly, but it is nowhere near the thresholds of debt sustainability.
- China and Kazakhstan have set up joint funds for investments that get companies and financiers from both sides so they both have skin in the game. It is a new stage in their bilateral economic cooperation.
- Uzbekistan is behind the curve, but we will likely see similar trends as in other Central Asian countries in three-four years.