The COVID-19 pandemic is hitting China’s global Belt and Road Initiative hard, jeopardizing President Xi Jinping’s multi-trillion dollar foreign policy agenda. Developing nations across the Belt are struggling as Chinese resources dry up and critical infrastructure projects are put on hold.
However, Beijing is wasting no time during this crisis to recalibrate its soft power in pursuit of long-term strategic objectives. At a World Health Organization (WHO) meeting earlier this month, Mr. Xi pledged $2 billion to combat COVID-19 over the next two years — mostly across the developing world. This has thrown gasoline onto a growing conflagration between Washington and Beijing, the competing great powers jockeying to assert themselves in the post-coronavirus international order.
Mr. Xi invoked the idea of a “Health Silk Road” in March, the first high-level reference to the term since China signed a memorandum of understanding with the WHO in 2017 promising to improve public health access for Belt and Road participants.
Using the Health Silk Road narrative, China is embarking on an extensive public diplomacy campaign to rebrand itself as a global health leader. This includes providing medical aid, funds, doctors and supplies to countries from Italy to Malaysia. The benefits include casting the Chinese Communist Party (CCP) in a responsible light, lending it legitimacy at home, and a distraction from China’s current economic woes. Between January and February, China’s GDP shrank by more than 13 percent and unemployment hit a massive 6.2 percent.
Trade partners most afflicted by China’s slowdown are among those most important to China’s Belt and Road agenda route. The Central Asian Republics of Uzbekistan, Turkmenistan, Kyrgyzstan and Tajikistan form the land bridge of the Belt with Kazakhstan as the “Buckle” — connecting East Asian and European markets. According to research lab AIDDATA, China committed $126 billion to Belt and Road initiatives in South and Central Asia in 2007-17, 85 percent of which was devoted to infrastructure projects. Half of this total went to Pakistan and Kazakhstan.
But with demand for commodities down, the countries of Central Asia are now feeling the pressure. Of China’s piped gas imports, 98.3 percent or 45 billion cubic meters came from Central Asia in 2019. Kazakhstan and Turkmenistan announced that they expect to see exports fall by 20 percent to 25 percent this year in a major blow to national revenue. Kazakhstan is estimating a GDP contraction of 0.9 percent compared to a 4 percent growth projection pre-coronavirus, while Turkmenistan’s 6.4 percent growth will now be cut to just 1 percent.
The non-energy exporters of Central Asia — Tajikistan, Kyrgyzstan and Uzbekistan — are also suffering as Belt activity slows down. The International Monetary Fund is forecasting that Tajikistan and Uzbekistan will see their growth shrink from 4.8 percent and 6.0 percent to 1.0 percent and 1.8 percent, respectively. Remittance heavy Kyrgyzstan is expected to contract by 4 percent in 2020 against the previous projection of a 3.4 percent expansion.
Nevertheless, the Central Asian countries are taking an active approach to building resilience amidst the pandemic. Kazakhstan is using its sovereign wealth fund to allocate about $10 billion to fight the pandemic and $740 million to support employment. Some $2 billion in tax incentives for small businesses, a massive liquidity package, and a forthcoming rehabilitation bill are all part of President Kassym-Jomart Tokayev’s plan to keep the Kazakhstani economy running amidst the crisis. The proposed tax reform introducing progressive income tax is a part of this re-adjustment.
The country’s Central Reference Laboratory (CRL) — which was built with the help of the United States to combat biological WMD proliferation — is now playing a significant regional role in the fight against COVID-19, despite unwarranted attacks by Russian and Chinese media.
Without Chinese demand for their resources, the smaller countries of Central Asia are looking to multilateral financial institutions for support. The Asian Development Bank Trade Finance Program was increased from $1.35 billion to $2.15 billion to support COVID-19 responses in Central Asia. Kyrgyzstan has asked China for partial debt relief of the nearly $2 billion it owes.
The pandemic has not changed geo-strategic realities: With few exceptions, Chinese economic and diplomatic expansion comes at the cost of American interests. But with that expansion temporarily slowed due to the coronavirus, the United States has a unique opportunity to re-engage in critical regions — chief among them in Central Asia.
The Trump administration’s BUILD Act is an important counterweight to the Belt and Road Initiative across the world. It consolidated the Overseas Private Investment Corporation into the U.S. International Development Finance Corporation (DFC), and increases synergy with the U.S. Agency for International Development (USAID). But together the budgets of the DFC and USAID are under $50 billion — with the DFC commanding just $90 million. Combined, the two have less than $1 billion in active projects across the Central Asian Republics. This is simply not sufficient to compete with Chinese investments and influence in the region.
Now is the time for the United States to capitalize on a slowing the Belt and Road Initiative and promote more assertive aid packages. To its credit, the Trump administration is providing some emergency aid to the tune of $6.8 million, with the U.S. Centers for Disease Control and Prevention earmarking $1.68 million for regional leader Kazakhstan. USAID committed $500,000, bringing the total U.S. government contribution to more than $3.79 million to support Nur-Sultan’s efforts to combat the pandemic.
However, more must be done to maintain U.S. interest across the Belt countries in the face of multi-billion-dollar Chinese engagement. Now is a unique opportunity for Washington to implement its Central Asian strategy, and show that it is committed to standing alongside the post-Soviet states in their economic development and civil society building. An American answer to China’s Health Silk Road — one that shows committed support for our friends and allies in Eurasia — will go a long way to promote markets and thriving societies in the heart of Eurasia.
• James Grant is a research fellow with the International Tax and Investment Centers in Washington, D.C.