China is not scaling back on its infrastructure projects in Central Asia. Despite significant changes in China's economy over the past few years, the funding commitment for this year's Belt and Road Initiative (BRI) forum in Beijing matched the initial pledge made at the first BRI forum in 2017, which was US$107 billion. Of this year’s announced investments, 15% was pledged to Kazakhstan. However, China’s internal economic problems are mounting, and the usual tricks China uses to pull itself out of crises aren’t working. Unless Beijing pulls a magic lever that will end the country’s looming economic crisis, Kazakhstan risks following China down with its economic plunge. 

China is currently facing economic deflation, an aging population, a shrinking workforce, a collapsing real estate market, declining relations with its biggest trade partners (Europe and the United States), and flat consumer prices. Critics warn that as the BRI develops further, China’s domestic problems could rise and spill over into the BRI countries. Yet, the rising tensions between the United States and China have prompted Beijing to increase its overseas spending as it vies for influence over the so-called Global South.

At the BRI forum on October 17-18 in Beijing, China’s Foreign Minister Wang Yi said “far more” had been delivered this year than at the 2019 forum. The “most ambitious vision” China unveiled at this year’s summit includes over US$16 billion in investment to Kazakhstan alone, a frontline state in China’s economic expansion offensive. During the first day of this forum, Kazakhstan signed 30 commercial agreements with China, including agreements on technology transfers, the supply of electric vehicles, and new infrastructure investment agreements. As China matched its previous funding pledge for the BRI, the state is indicating that it will not be scaling back on the size or quantity, of its infrastructure investments.

Kazakhstan’s Ministry of Transport signed agreements on the development of the Middle Corridor, otherwise known as the Trans-Caspian International Transport Route (TITR), the development of multimodal and container transportation throughout Kazakhstan, the construction of the Tacheng-Ayagoz railway line, the construction of a third railway checkpoint between Kazakhstan and China, the establishment of border terminal facilities, and the development of “an aviation route that will lay the groundwork for the rapid growth of freight hubs in Kazakhstan.”

“We will vigorously integrate ports, shipping, and trading services under the ‘Silk Road Maritime’ and accelerate the building of the New International Land-Sea Trade Corridor and the Air Silk Road,” said President Xi Jinping.

It appears that China is also prioritizing the China-Europe railway express to deliver its goods to European markets through Central Asia. Kazakhstan’s Temir Zholy National Railway Company and China’s CRRC Corporation Limited, the world’s largest railway transport manufacturer, signed a $1.3 billion agreement to purchase 200 shunting and mainline diesel locomotives and to establish engineering and service centers in Kazakhstan. CRRC, which owns 50% of the global locomotive production market, plans to invest over $200 million in Kazakhstan’s market. 

For a country whose economy was slow to develop after nearly a century of Soviet isolationism, Kazakhstan surely welcomes the hasty injection of infrastructure finance. However, a decade of involvement in the Belt and Road Initiative (BRI) has not necessarily translated into sustained economic development. In 2013, when the BRI was initially introduced, Kazakhstan achieved its highest GDP levels, but it has yet to return to that peak ever since.

China has been criticized for its lending practices, implementation problems, and sustainability of infrastructure. For one, China’s railway, road, and pipeline financing in Central Asia have oriented the region’s transport infrastructure towards China rather than other international markets. This leaves Central Asia vulnerable to China’s internal economic problems, and Beijing does not seem eager to finance projects that export products Westward. As an example, China happily funded the Central Asia-China gas pipeline in 2009, a pipeline that exports Turkmen gas into Chinese infrastructure through a set of three pipelines. However, Chinese financiers have been reluctant to fund other Turkmen projects, such as the Trans-Caspian Pipeline, which would export gas across the Caspian into Azerbaijani infrastructure, or the Turkmenistan-Afghanistan-Pakistan-India pipeline, which would direct Turkmen gas into India. 

Conversely, China's investment and ownership of ports in Europe have enabled the country to redirect its excess goods to consumer markets like Italy. This may be one of the reasons Italy chose to back out of the BRI earlier in 2023. Its market was flooded with surplus Chinese products, while Italy itself struggled to benefit from the increasing access to China’s market. In fact, since Italy signed onto the BRI in 2019, its exports to China have minimally increased from 14.5 billion euros to 18.5 billion euros, while Chinese exports to Italy have drastically increased from 33.5 billion euros to 50.9 billion euros.

The unequal nature of this relationship exerts substantial pressure on the resource-rich economies China engages with for resource extraction and the consumption centers that China serves. Due to infrastructure favoring China, a reduction in China’s exports could lead to a reduction in China's imports, leaving supply chains strained and export-dependent economies with limited consumer options. 

China's extensive spending in extraction-based economies has left these countries burdened with significant debt. In recent years, Kazakhstan has accumulated a large sum of hidden debts, nearly 16% of its total GDP. Tajikistan owes an estimated $3.3 billion to foreign investors, half of this owed to China, amounting to 27% of its total GDP. By 2020, Uzbekistan’s debt to China reached $3 billion, or 20% of the country’s total foreign debt. And Kyrgyzstan has an estimated $4 billion in unpaid loans to China, an estimated 40% of its total GDP. 

These mounting debts have diminished China's capacity to provide loans. Kazakhstan- the largest receiver of Foreign Direct Investments in Central Asia- received US$960 million from China in 2020, US$1.85 billion in 2021, and this decreased to US$996 million in 2022. With high unpaid debts, Central Asian states are hindering their ability to develop industries outside of their primary commodities, prolonging a vulnerability to global price standards. Not only does this jeopardize economic stability, but this high debt sustainability problem has impeded the region’s efforts to mollify environmental and social risks caused by Chinese-funded infrastructure projects.

Their implementation problems have tainted the reputation of BRI infrastructure projects. Behind the BRI’s sleek branding, projects have been delayed, outright abandoned, or hindered by corruption. Just a few weeks before China’s 2023 BRI forum, the China-Kyrgyzstan-Uzbekistan railway line was indefinitely delayed due to reported financial problems. The China-Central Asia Line D pipeline has been stuck in the pre-construction phase since it was first announced in 2014. In 2019, the construction of a light railway system, financed by China, was halted due to reports of embezzlement.  In January 2018, Bishkek’s main powerplant broke down in freezing temperatures only four years after China’s Tebian Electric Apparatus Stock Co. Ltd. (TBEA) modernized the plant with a nearly US$400 million loan. A 2021 study conducted by AidData found that 35% of BRI infrastructure projects have been impacted by controversies such as corruption, excessive debt, and labor exploitation.

For Kazakhstan, China promised to bring its goods to the rest of the world through the BRI, but this hasn’t yet materialized. The Khorgos Gateway, a railway that connects Kazakhstan to China, then moves to the eastern Chinese seaport of Lianyungang by expressway, led with the intent to move Kazakh products to the Pacific. With this new railway connection, it would be expected that Kazakh products would easily reach Indo-Pacific markets. Yet, Kazakhstan-Japan trade has been declining for the past decade. However, what has increased is China’s ownership and extraction of Kazakhstan’s natural resources.

To China’s benefit, it has successfully limited the size of its infrastructure projects as it promised. But, in terms of the sustainability of these projects, it hasn’t seemed to improve.

At this year’s BRI summit, China announced investment for the reconstruction of the Shymkent oil refinery, in which China National Petroleum Corporation (CNPC) has a stake; Qazaq Gas signed an agreement with China’s Geo-Jade Petroleum for the development of the Pridorozhnoye field; and KazMunayGas agreed to construct a gas turbine power plant (GTPP) at the Atyrau oil refinery with China National Chemical Engineering Group Corporation (CNCEC). One thing to note about these projects is their use of traditional energy resources; that is, oil, gas, and coal.

Although China had promised to wean itself off coal-fueled power in 2021, China is still currently constructing projects that could add up to 33.5 gigawatts of coal capacity. In 2022, 52.6% of China’s domestic energy production came from coal-based energy infrastructure. And in 2020, even after all the talks of carbon neutrality, China drastically expanded its domestic use of coal-fired power plants by 30 gigawatts over the course of the year, compared to a net decline of 17 gigawatts elsewhere in the world. 

Despite its carbon emission targets and coal reduction promises, China is not only using more coal, but it is also importing more coal-fired power than ever. Although China’s domestic production of coal-generated power has dropped from its high point of 81% in 2007 to 66% in 2019, most of this has to do with its increased dependence on energy imports. As part of China’s Belt and Road Initiative (BRI), China has financed over one-fourth of the world’s coal-fired power generation infrastructure- 23% of which is for subcritical technology, the most polluting form of coal-fired generation.

The coal-dominated landscape continues to shape Kazakhstan's power sector. Renewable energy constitutes merely 1-2% of the nation's total energy supply. As of 2020, coal-fired capacity stood at 50%, while gas-fired capacity comprised 31% of total supply, and oil took up 18% of Kazakhstan’s total energy supply. China’s green energy ambitions have done little to significantly raise Kazakhstan’s renewable energy production. Despite the solar and wind energy generation facilities China is financing, China has failed to finance upgrades to Central Asia’s energy grid. Meaning that the grid is still too inflexible to transmit the energy these facilities are producing. 

Not to say that China hasn’t funded the construction of renewable energy facilities across Central Asia; it is actually quite the opposite. However, the unfortunate fact is that with China’s ambitious economic targets, it has over-incentivized high energy usage without first implementing sustainable energy infrastructure.

Although China funnels massive investments in hard infrastructure (roads, bridges, railways), it often fails to provide complementary investments in soft infrastructure; that is, energy transmission grids, transport logistics, and technology advancements. This heavily limits the profitability and usefulness of hard investments as it often adds layers of bottlenecks. 

China’s BRI was once regarded as “the centerpiece of China’s economic engagement with the rest of the world,”; but now, partner countries are drowning in debt and projects are failing to address developmental issues within the countries they serve. In 2022, 60% of China’s overseas loans went to borrowers in financial distress, compared to 5% in 2010. And in 2020, China delayed debt repayments for 77 countries.

The problem is that if countries in Central Asia continue to implement these projects and take on the debt that comes with them, they won’t be left with any alternatives. Institutions like the IMF may consider them too risky to bail out. And unfortunately, China lacks the economic incentives to fix these problems. China’s market competitiveness has stagnated, its openness to portfolio and direct investments has deteriorated in Central Asia, and its internal market is declining. Soon, China might not be able to afford to solve the complex problems with which it has riddled Central Asia.