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Chinese Investments in South Asia

3 MINS READOct 29, 2012 | 14:02 GMT

Video Transcript:

China National Petroleum Company has kicked off production at the Amu Darya oil field in northern Afghanistan. Initially, the state-owned Chinese energy firm will extract less than 2,000 barrels per day — roughly 8 percent of current daily Afghan oil consumption. But this is only the first step in a 25-year pact between Kabul and the Chinese firm to develop the Afghanistan's energy resources, transport infrastructure and refining capacity. The pact reflects China's growing awareness of new strategic opportunities and challenges in South Asia — especially as the U.S. withdrawal from Afghanistan approaches.

Chinese firms have stepped up investments into South Asia in recent years. In dollar value, China's investment flows to the region are far smaller than those to Africa, Latin America or Europe. But they are no less strategically significant for Beijing as it moves to improve its access to the Indian Ocean and counterbalance Indian influence on the subcontinent.

Over the last decade, the U.S. presence in Afghanistan has helped China in two ways. First, it kept at bay militant activity that otherwise might have festered and spread into China's Uighur Muslim populated Xinjiang province. At the same time, with the U.S. tied down in the Middle East and South Asia, China was able to focus on economic development and building out its maritime security capabilities. When the U.S. leaves, China not only will be forced to play a more proactive security role in countries like Afghanistan and Pakistan, but it may also encounter a re-invigorated U.S. presence in the Pacific.

Projects like the Amu Darya oil field — and others in places like Afghanistan, Nepal and Pakistan — reflect Beijing's strategy of preempting instability and the need to play a direct security role through economic development. In that sense, they are an extension of the Party's efforts to undermine separatist movements in Xinjiang, Tibet and Inner Mongolia by integrating those regions more closely with the national economy.

For China's leaders, maintaining stability along the country's land borders is a first imperative — only when that's done can they address problems in China's Han core. So when state-owned companies like Three Gorges International Corporation pledge $1.6 billion to build dams in Nepal, it's not only about exporting Chinese technology but also about building political ties that help it hedge against Indian influence in Kathmandu.

While Beijing's interest in Afghanistan may be defensive, Chinese investments in other parts of South Asia reflect a more proactive strategy of securing access to resources and the ports, roads and railways they're shipped through. Chinese companies are currently mining for lead and zinc in southwest Pakistan and have invested 200 million dollars in upgrades to the Gwadar deep-sea port in Balochistan. Likewise, Beijing agreed to invest a total of 1.2 billion dollars in Sri Lanka's Hambantota Port and has promised similar investment at Bangladesh's Chittagong Port. In some sense, these projects are designed to counter New Delhi's influence in the Indian Ocean Basin. But more important for Beijing is their role in maintaining and expanding the network of raw materials and resources that feeds China's industrial machine.

As the U.S. forces prepare to pull out of Afghanistan, competition is mounting for influence and investment in the region. Against this backdrop, Beijing is eyeing projects like the Amu Darya oilfield in Afghanistan as ways to deepen its ties to South and Central Asia, whether through bilateral engagements or forums like the Shanghai Cooperation Organization. For China, building these ties in South Asia is critical not only for expanding country's regional and international profile but also maintaining basic security along its western borderlands.

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