Over the past 22 years, China has invested $105 billion in Central Asia for development finance, with Uzbekistan receiving $18 billion of this amount. Notably, half of these funds come from the China Development Bank (CDB), a crucial tool in China’s foreign economic strategy.
This article delves into the utilization of these funds, the conditions under which Uzbekistan received them, and the future prospects of the partnership with CDB. The analysis is based on data from Aid Data, insights from experts, and research conducted by journalists from Uzbekistan, Tajikistan, and Kyrgyzstan.
China’s interest in Central Asia is quite typical. According to Aid Data, China has committed over $1.3 trillion to development financing since 2000, positioning itself as the world’s largest source of such funds. Experts Marina Rudyak and Andreas Fuchs highlight three primary motives behind China’s foreign aid: political, economic, and humanitarian.
In Central Asia, China has targeted objectives. According to Jana Leksyutina, a professor at the Russian Academy of Sciences, China’s economic expansion aims to stabilize the Xinjiang Uyghur Autonomous Region and prevent extremism and terrorism from Afghanistan and the Middle East.
Since the late 1990s, China has ramped up efforts to diversify its resource imports, particularly through energy partnerships with Central Asia. For example, Turkmenistan has emerged as a key gas supplier, while Kazakhstan has become a major uranium provider.
After the 2005 Andijan massacre and international backlash, Uzbekistan turned to China, leading to increased Chinese investments. Leksyutina notes that this partnership will grow, fuelled by Uzbekistan’s economic expansion and commitment to openness.
The 2023 Chinese guide on overseas investments highlights Beijing’s interest in Uzbekistan. It points out the country’s appeal due to its low labour costs and living expenses. Furthermore, it emphasizes that Uzbekistan’s stable political situation, maintained public order, and adherence to laws create a favourable environment for economic growth.
China is a key economic player in Uzbekistan. By the end of 2023, Uzbekistan owed China $3.775 billion, nearly 13% of its external debt. By 2022, CDB held $2.2 billion of this debt, making it Uzbekistan’s third-largest creditor. In 2023, China became Uzbekistan’s main trading partner.
Over the past two decades, Uzbekistan’s top sector for financial commitments has been industry, mining, and construction (63.3%), including major projects like the Central Asia-China gas pipeline and the Oltin Yo’l gas-to-liquids plant. Transport and storage, mainly for Boeing and Airbus aircraft, is the second largest sector, followed by energy. Aid Data confirms China’s focus on infrastructure and natural resources. The telecom sector, though smaller, is also significant, with CDB’s investments starting in 2007.
The latest Aid Data survey of 1,650 public leaders from 129 countries shows that their expectations of development cooperation with China often match Beijing’s actual terms: more funding with fewer political conditions, but with lower transparency, opportunities, and quality. The lack of transparency on both sides means there are almost no publicly available documents on lending terms.
In 2015, the Association of Banks of Uzbekistan detailed the CDB credit line, which covers up to 85% of equipment import contracts, with at least half of the equipment sourced from China. Loans start at $100,000, with no upper limit, a two-year grace period, and an eight-year term. Aid Data notes that most projects are executed by private and state-owned Chinese companies. Temur Umarov from the Carnegie Russia Eurasia Centre highlighted that Chinese loans often come with conditions, such as using Chinese companies for local project implementation, which can limit borrower options.
In Tajikistan, over half of the equipment bought with concessional loans must be Chinese. Expert Pairav Chorchanbaev noted that projects must be implemented by Chinese companies, using Chinese technologies and equipment. This benefits China but can reduce quality due to limited competition, making it less favourable for the recipient country.
Furthermore, according to the Government of the Republic of Tajikistan’s decree from May 30, 2012 (No. 252), paragraph 6.5, Chinese contractors working on the Dushanbe-Kulma road rehabilitation project are exempt from taxes, including customs duties, VAT, excise, profit tax, and income tax on foreign currency wages. This exemption raises concerns about the agreement’s benefits for Tajikistan.
Loans from the CDB and Bank of China for the Central Asia-China gas pipeline project are to be repaid through gas sales. Leksyutina noted that China accepts non-monetary debt repayments, like infrastructure management rights or resource licenses. In 2019, TBEA received rights to develop Tajikistan’s Upper Kumarg and Duoba gold deposits in exchange for funding the Dushanbe-2 power plant construction.
Kyrgyz politicians have confirmed this. In 2021, President Sadyr Japarov and in 2022, Prime Minister Akylbek Japarov stated that if the debt to China isn’t repaid, control of strategic facilities would go to China. Notably, in 2011, Tajikistan transferred 1,158 square kilometres of territory to China.
Another risk of partnering with Chinese banks and companies is potential involvement in corruption. In 2021, the CDB was embroiled in an anti-corruption campaign, leading to the dismissal of nine senior executives. In September last year, former CDB vice president Zhou Qingyu admitted to accepting a bribe of 5 million yuan ($712,000).
Chinese companies in Kyrgyzstan have faced corruption allegations. After TBEA Co., Ltd. reconstructed the Bishkek Thermal Power Plant, criminal cases were filed against officials, including former prime ministers Sapar Isakov and Jantoro Satybaldiyev, for corruption and abuse of power. The General Prosecutor estimated $111 million in damages. Isakov was also accused of lobbying for TBEA, and ex-president Almazbek Atambayev faced charges.
In addition to this, in 2018, CRBC, responsible for the “North-South” road project, faced accusations of inflating construction costs to $3 million per kilometre. In 2021, the Kyrgyz State Committee for National Security suspected the company of further inflating prices by $123 million. The China Development Bank’s extensive loans to Uzbekistan over the past two decades have sparked concerns about the country’s future. The stipulation that Chinese-financed projects use Chinese equipment and services could restrict local economic gains and technological independence. If debts remain unpaid, there’s a significant risk of losing strategic assets, as seen in neighbouring countries. Additionally, corruption in these large-scale financial operations might undermine the intended developmental benefits.