“China’s Evolving Economy: Role of Trade with Central Asia”
The economy of the People’s Republic of China has undergone significant changes from the past to the present. Formerly focused on exporting parts and components assembled for developed countries, the economy is now being restructured to support domestic consumption and play a different role in the global economy. China’s foreign trade, particularly with Central Asian countries, plays a crucial role in this transformation.
In this context, Ankara Centre for Crisis and Policy Studies (ANKASAM) presents the views of research in the Global South and monitoring and evaluation specialist at BioKG, Aaron Odum to Viewed on China’s relationship between foreign trade growth and trade with Central Asia.
1-Can you explain why China’s foreign trade is growing faster, and what factors contribute to this growth?
The economic drivers of the economy of the People’s Republic of China (PRC) are rapidly changing. Historically, the PRC’s economy was driven by the import of parts and components (P&Cs), which were assembled and exported to developed countries as finished products. The comparative advantage of its large labor force allows the PRC to manufacture products for which there is little domestic demand and place itself at the end of most global value chains (GVCs). Additionally, until 2011, investment represented up to forty percent of the country’s annual gross domestic product (GDP). More recently, the PRC has reduced the import of technologically advanced P&Cs in favor of internal production and export of these components.
Furthermore, the PRC has increased the value-added of its exports while reducing the share of investment as a percentage of its economy. As a result, the PRC is transitioning out of its role as the production factory of the world. Domestic consumption is replacing investment as one of the most significant economic drivers of the PRC. The domestic production and export of more technical P&Cs reduce dependence on Japanese and South Korean markets for these same inputs. At the same time, the PRC is importing fewer capital goods, machinery, and equipment used to manufacture products and exporting fewer finished products. Instead, the PRC is working to orient its economy towards a domestic consumption-based growth model.
2-What is the significance of China’s trade with Central Asia, and how has it changed in recent years?
The PRC trades with Central Asia to further its long-term trade route ambitions and access consumer goods and hydrocarbon imports. Long-term trade route ambitions include the Belt and Road Initiative (BRI), announced by PRC President Xi Jinping in Astana, the capital of Kazakhstan, in 2016. The “New Eurasia Land Bridge” and “China, Central Asia, West Asia Economic Corridor” will further the PRC’s trade interests through Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, and Turkmenistan. These trade corridors will reduce transit costs, time, and bottlenecks associated with overland trade between the PRC and Europe. This ambitious project is backed by over $1 trillion in potential investments from the Asian Infrastructure Investment Bank, Silk Road Fund, BRICS’ New Development Bank, and Chinese Development Bank. The cargo volume between the PRC and Europe quadrupled between 2013 and 2016, a testament to the importance of additional land routes for products between these countries. PRC-funded energy and transportation infrastructure will also improve oil, gas, and agricultural exports from Central Asia to the PRC.
Bilateral trade between the PRC and Central Asia has grown exponentially from $1.5 billion in 2003 to $38.6 billion in 2020, projected to reach $70 billion by 2030. Nearly a quarter of Central Asian exports go to the PRC. While the PRC focused heavily on energy infrastructure in the past 20 years, newer foreign direct investment is concentrated in developing industries capable of supplying the PRC with much-needed consumer goods. Many PRC firms appreciate the reduced competition in Central Asia, despite navigating an unstable business environment.
3-What are the main products and industries driving China’s exports to Central Asia, and how do they compare to other regions?
Various products and industries drive the PRC’s exports to Central Asia. Kazakhstan imports clothing, computers, children’s games and toys, and vehicle parts from the PRC. Kyrgyzstan’s imports from the PRC primarily consist of apparel, footwear, assorted clothing, and other items. Turkmenistan relies on Chinese imports of railway vehicles, tires, and telecom devices. Uzbekistan predominantly imports clothing, vehicles, and telecom equipment from the PRC. Tajikistan’s critical imports from the PRC include motor vehicle parts and footwear. These products reflect the specific trade relationships between the PRC and the Central Asian countries and emphasize consumer goods, transportation equipment, and telecommunications.
Southeast and East Asia, on the other hand, primarily import sophisticated electrical goods from the PRC, including office machinery, integrated circuits, and broadcasting equipment. In recent years, the PRC has increased its production and export of sophisticated parts and components (P&C). In turn, the PRC reduces these imports from other Asian countries, which harms them. Therefore, neighboring Asian countries must develop strategies to mitigate the changing Chinese economy and explore opportunities to increase their production and exports of consumer goods to the PRC, adapting to this evolving trade dynamic.
4-What challenges and opportunities do you see in China’s trade relations with Central Asia in the short and long term?
A short-term opportunity for the PRC’s trade in Central Asia is the hiring and upskilling of Central Asians in the region. Central Asian government officials now demand greater inclusion of the local workforce in PRC operations. In response, the PRC has mandated that its firms hire and upskill eligible Central Asians. Additionally, the PRC is initiating its first Luban Institute in Tajikistan, providing students with hands-on training in the fields of urban heating application and engineering measurement technologies. These institutes will provide educated cohorts capable of fulfilling technical jobs required by PRC firms in the region.
In the short term, the degeneration of Afghanistan’s political and economic situation may encourage the spread of religious extremism throughout Central Asia. The result in adjacent countries will be increased political and economic instability, more authoritarian political measures, reduced foreign direct investment, and decreased economic progress. PRC investment, trade facilitation, and infrastructure development in the region will be significantly reduced.
Another short-term challenge is the potential accession of Uzbekistan, Tajikistan, and possibly Turkmenistan into the Eurasian Economic Union (EAEU) – the analog to the Shanghai Cooperation Organization which furthers security and economic interests in the region. Currently, Kazakhstan and Kyrgyzstan are members. Other Central Asian states resist joining for fear of losing out on Russian customs duties. If Uzbekistan joins the EAEU, other Central Asian states will likely follow suit, increasing the free trade of goods and services between them and Russia. The economic and political influence of the PRC would be dramatically reduced. Once the Ukrainian war concludes, Russia may express renewed interest in the region, further exacerbating the challenge.
5-How do geopolitical factors, such as China’s Belt and Road Initiative, impact its trade relations with Central Asia, and what implications might this have for other countries in the region?
The PRC is heavily investing in Central Asian states to create the production infrastructure and workforce necessary to meet its growing demand for consumer products and ensure efficient access to EU markets. Bilateral negotiations between the PRC and Central Asian countries discourage shared regional economic decision-making and integration. In Central Asia, the “winners” of bilateral trade negotiations generally prioritize their extra-regional interests over their regional cooperative interests. Therefore, the PRC will continue enjoying favorable trade terms in the absence of a unified and coherent Central Asian trading bloc.
Other geopolitical factors include the PRC’s inclusion in BRICS and the alliance between China and the Russian Federation in shaping a new world order. As a member of BRICS, China may actively discourage Central Asian countries from forming or strengthening trade policies with Western powers and redirect Central Asian resources towards promoting south-south cooperation among BRICS nations. This encouragement may lead to increased trade between Central Asia and its Asian neighbors instead of Western-friendly powers. Moreover, the rise of the PRC as a leading power in the new world order will grant it significant influence in the Middle East and other regions. Other countries in the region will be further separated from western trade and expected to serve the interests of the new world powers.
Aaron Odum is an applied development practitioner with experience in work and research in the Global South. In 2022, he led a research team from the University of Central Asia in surveying and interviewing rural farmers near Bishkek about their sustainable agricultural water use. Aaron holds a Master’s degree in Development Practice from Emory University in Atlanta, the USA, with a geographic concentration of Kyrgyzstan and a focus on qualitative data collection and analysis. Currently, Aaron works as a monitoring and evaluation specialist at BioKG, a nationwide non-governmental organization (NGO) based in Kyrgyzstan that focuses on organic agriculture. In 2023, Aaron realized his lifelong dream of permanently relocating to Kyrgyzstan to work in grassroots community-led development. He specializes in ethnographic research methods to create sustainable economic and social solutions, emphasizing development without relying on loans.
