Although Uzbekistan under Soviet rule did not have any formal diplomatic relationship with the People’s Republic of China (PRC), the authorities in Tashkent established diplomatic ties with the PRC on 2 January 1992. They were the first government in Central Asia to do so in the wake of the collapse of the Soviet Union. Throughout the 1990s and 2000s, while there were regular high-level visits by delegations from the two countries, bilateral relations remained limited mainly to small-scale exchanges of goods. Uzbekistan and China do not share a common border, so the cost of transit, lack of infrastructure, and trade barriers limited economic relations. On top of that, former President of Uzbekistan Islam Karimov (in power from 1991 to 2016) managed to maintain regional and global powers, including China, at a certain distance both economically and politically.
However, in recent years strategic partnership agreements within the framework of the Belt and Road Initiative (BRI)—in particular, the Joint Declaration on Further Developing and Deepening the Strategic Partnership of 2013 and the Comprehensive Strategic Partnership of 2016—have given fresh impetus to expanding bilateral relations. While historical linkages related to the old Silk Road are often presented as a bedrock for political and economic relations between the two countries, it is Uzbekistan’s energy and mineral resources, strategic location, and the market for Chinese goods that draws Chinese interest today.
Uzbekistan was relatively late in developing significant economic ties with China in Central Asia. However, thanks to its strategically important location along the overland route to Middle Eastern and South Asian markets and abundant natural resources, the country is becoming one of the key pillars of China’s Silk Road Economic Belt (SREB)—that is, the section of BRI in Central Asia. Under the rubric of the BRI, energy and industrial projects have expanded, as have infrastructure and communication networks in Uzbekistan, thus enhancing the country’s participation in the new, China-centred Eurasian economic and geopolitical order. Yet, the impact of closer economic and political ties with China remains to be seen.
The economic liberalisation of Uzbekistan under President Shavkat Mirziyoyev, who took power in 2016 after the death Islam Karimov, has boosted trade relations with China. Mirziyoyev’s new ‘open doors’ policy is now encouraging external investment on an unprecedented scale. Beijing, in turn, has capitalised on the economic reforms in Uzbekistan, which have improved the investment climate and now provide better protection of the legal rights and interests of foreign businesses. This surge of Chinese investment has been openly welcomed by the new Uzbek leadership. As a result, in less than a decade, China has turned into Uzbekistan’s largest trading partner, source of imports, and destination of export goods.
Bilateral Trade: As Uzbekistan’s top trading partner, China now accounts for almost 20% of the country’s foreign trade. Since 2016, China has eclipsed Russia to become the largest exporter of goods and technologies to Uzbekistan. China replaced Russia as the top destination for Uzbek products even earlier, in 2013. Uzbekistan’s overall trade turnover with China amounted to 6.26 billion USD in 2018, a nearly 50% increase compared to the previous year. In 2019, the trade turnover between the two countries reached 7.6 billion USD. The price advantage of Chinese finished goods—including consumer products, machinery, processed foodstuffs, textiles, shoes, electronic goods, pharmaceutical products, and automobile parts—well suits local consumers with low purchasing power. In exchange, Uzbekistan exports mainly raw materials to China.
Investment: China has also become the largest single investor in Uzbekistan, with the energy, industrial, and infrastructure sectors receiving the lion’s share of investment. As of November 2019, Chinese investment in Uzbekistan exceeded 9 billion USD. In May 2017, President Shavkat Mirziyoyev returned from his first official visit to China with around 100 deals worth 20 billion USD. This new investment package is expected to significantly expand Chinese economic presence in Uzbekistan, particularly in the joint production of synthetic fuel (3.7 billion USD), oil industry (2.6 billion USD), power-generation plants (679 million USD), and railroad infrastructure development agreements (520 million USD). No update has been released on the extent to which these funds are being used so far. Backed by primarily Chinese funding, Uzbekistan is also building a 1.7-billion-USD international business and financial hub in Tashkent. In 2020, over 1,650 Chinese-invested enterprises employing more than 20,000 people were active in Uzbekistan, with almost one-third of them established in 2019 alone.
The energy sector is a priority in the cooperation between China and Uzbekistan. A joint investment fund with an authorised capital of 1 billion USD between Uzbekistan’s Ministry of Investment and Foreign Trade and China’s state-owned enterprise CITIC to implement high-tech projects in the petrochemical and hydrocarbon industries was created in 2019. In late 2020, the Uzbekistan-China Intergovernmental Cooperation Committee was finalising the list of projects to receive financial support from that fund. The sale of raw materials, such as natural gas, uranium, copper, and mineral fertilisers, is the most lucrative area in cooperation with China, and it accounts for over 50% of Uzbek exports. The most significant of these commodities is natural gas. One of the largest deals landed by the Uzbek leadership was 1.2-billion-USD financing for a project for the production of synthetic liquid fuel at Shurtan, Uzbekistan’s largest gas refinery complex. In 2011, the Uzbek authorities signed a bilateral agreement to supply 10 billion cubic metres of gas annually to China via the Line C of the Central Asia–China Gas Pipeline for 25 years.
For Uzbekistan, like the rest of Central Asia, Chinese loans for rail and road infrastructure are crucial. Transport infrastructure in the country is both inadequate and outdated, and only Beijing currently has the willingness and financial resources to invest in large infrastructure projects. Western governments refrain from investing in large-scale projects and prioritise local community engagement, while Russia has inadequate funds to promote expensive initiatives in Uzbekistan. Besides, China is willing to engage in the most technologically challenging projects. For instance, China has recently completed the construction of the Angren–Pap railway, the longest of its kind in Central Asia and a new link in the transportation corridor connecting China to Kyrgyzstan and Uzbekistan. The 455-million-USD Kamchiq tunnel (19.2 kilometres long) in Uzbekistan was built by the Chinese in just 900 days to link the capital city Tashkent to the resource-rich Fergana valley.
Aid: China has used foreign aid as a regular diplomatic tool in its bilateral relationship with Uzbekistan since its independence. While no official statistics are available, official announcements and news reports show that China committed grants or interest-free loans to Uzbekistan in at least the following years: 1996, 2001, 2005, 2006, 2008, and 2009. According to a Chinese media report, by 2017 there were over 40 projects in Uzbekistan that were funded by Chinese grants in sectors such as education, health care, customs, culture, agriculture, water and electricity supply, and security. Lately, China has started to cooperate with Uzbekistan on the poverty reduction front, as the two countries signed a joint Uzbek-Chinese intergovernmental research project in October 2020.
Energy: Line C of the Central Asia–China Gas Pipeline was launched in 2015 when the country itself was experiencing a shortage of energy for domestic consumption. Natural gas for local consumers is heavily subsidised by the Uzbek government and is no longer a source of national revenue. This explains the authorities’ willingness to export gas for higher prices to China, even at the expense of local consumption. However, increased export of natural gas to China has caused discontent among Uzbek citizens, as it causes scarcity of gas for domestic use, especially during cold winter months.
Limited contribution to local economies: Uzbek authorities often emphasise that BRI infrastructure projects, along with transforming the country into a strategically important transit territory, will boost the domestic economy—raising living standards, expanding local business and production, and offering new employment opportunities for the local people. The fact that some flagship BRI projects have not materialised and, even where they have, these promises have remained largely on paper, has raised concerns among the public. For instance, a Nurken village nearby Khorgos dry port was supposed to expand into a city of 100,000 but it is still inhabited by less than 2,000 people and has underdeveloped infrastructure. In addition, as in other Central Asian countries, the fact that most of the materials, technology, equipment, and services necessary for the implementation of the projects financed by the Chinese were procured from China has also caused domestic tensions.
Emerging cyber-security risks: Investments in telecommunications have also become a prominent area of bilateral cooperation. In April 2019, two Chinese companies—Huawei and CITIC Guoan Information Industry—announced in a meeting with the Uzbekistani president Mirziyoyev that they would invest up to one billion USD to enhance the digital infrastructure of the country. In August 2019, during president Mirziyoyev’s visit to China, Huawei signed two Memorandums of Agreement with Uzbekistan’s Ministry for Development of Information Technologies for the implementation of ‘safe’ city projects throughout Uzbekistan, which involve surveillance and video monitoring technology that supposedly can enhance the capabilities of law enforcement, and for the application of modern ICT technologies in emergency medical services. At the same time, Uzbekistan reportedly secured a 150-million USD loan from China for upgrading the country’s existing cellular network to 4G country-wide and 5G in select regions by 2023 using Huawei equipment. Almost all contracts to install and operate advanced communication technologies are currently won by Chinese companies, aligning the country’s national policies on connectivity and cybersecurity standards to those of China. According to Liu Jiaxing, Head of Huawei in Uzbekistan, security provided by such surveillance systems will help promote foreign investment in the country. The fact that Chinese-made surveillance systems are being installed now in Uzbekistan, however, is causing concerns among Uzbekistani citizens.
Sovereign debt concern: Evidence suggests that the foreign debt has surged after Uzbekistan participated in a number of large BRI projects. External debt doubled between 2013 and 2019, reaching 21.7 billion USD in 2019, partly due to the inflow of Chinese loans. As of January 2021, Uzbekistan owes China Development Bank (CDB) and Export–Import Bank of China (China Eximbank) 2 billion USD each, out of its 21.1 billion USD of outstanding public external debt. As such, China is the largest bilateral creditor of Uzbekistan’s. Rapidly rising foreign debt to a single creditor—China has already become one of the major concerns for all Central Asian countries, including Uzbekistan.
English-language Local Media:
Books, Reports, and Scholarly Articles:
Cover Photo: iltelegrafo (CC).