China & Israel Cooperation in Central Asia


Introduction
The BRI is an attractive opportunity for Central Asian states along the New Silk Road. Chinese investment can be a key catalyst for development in Eurasia, helping propel it into the first world by fostering trade routes between East and West. Perhaps no country exemplifies this opportunity more than Kazakhstan. Its economic ambitions and geographic location position it well within the context of the BRI.

A more developed Kazakhstan would provide the BRI with an essential launch pad for expanding China’s planned multinational infrastructure network; lessons learned from the China’s efforts there can be instructive for much of Central Asia. At the same time, the Kazakhstani example presents several pertinent obstacles that should be addressed in order for the BRI to move forward across this complex territory most effectively. For one, the Kazakhstani populace and neighboring countries have demonstrated certain hesitations regarding Chinese development assistance, noting concern that foreign investment will connote a sacrifice of autonomy. Other fundamental questions include China’s ability to help diversify Kazakhstan’s extractive oil and gas-based economy, as well as the current viability of Kazakhstan’s high-speed rail system.1 A closer examination indicates that, to an extent, these questions stem from the BRI’s inherently bilateral nature.

Some recipients of Chinese investment are re-examining the long term mutual benefits of such cooperation. In the case of Kazakhstan, the areas of the economy with the most pressing needs are not necessarily sectors where China is ideally positioned to carry out the needed transformation without the expertise of a third party nation. Trilateral cooperation with the right partner can help China address some of these challenges in Kazakhstan. Israel’s unique strengths and political track record make it a sought out candidate for this role. A Chinese-Kazakhstani partnership with Israel would improve logistical support for the BRI’s infrastructure expansion, enrich Kazakhstan’s economic development in the decades to come, expand agricultural production that would benefit the entire Central Asian region, and enhance the BRI’s political image.

Kazakhstan – Door to Central Asia
Success in Kazakhstan would be observed by that country’s neighbors as a model for their own participation in the BRI. By facilitating extensive infrastructure and commercial projects in neighboring countries, China would become the nexus of a highly developed and stabilized economic/geopolitical network spanning across the entirety of Eurasia. An appealing aspect of this narrative is China’s continued assurance that the BRI is a collective, nonzero sum effort for all nations involved. It is perhaps an indicator of China’s commitment to this cooperative approach that during his speech at the 2017 opening of the Belt and Road Forum for International Cooperation, President Xi used the term “mutual” ten times.2

It is no coincidence that Xi was in Astana when he first introduced the BRI. As the geographic link between the Far East and Europe, Central Asia is critical to the initiative. As Central Asia’s largest country in terms of GDP and land mass, effective cooperation with Kazakhstan can beget China’s broader regional success. Kazakhstan offers a valuable case study of the BRI in Central Asia because it represents a microcosm of the challenges and opportunities Central Asia presents to the BRI as a whole. A successful initiative there can serve as a template for China’s approach to the entirety of the region.

Kazakhstan
Led by President Nursultan Nazarbayev since becoming independent from the USSR in 1991, Kazakhstan employs a “multivector” foreign policy, in that it maintains friendly relations and trade partnerships with Russia, China, the US, the EU, and much of the Middle East including Israel. 34 This likely contributes to Kazakhstan’s impressive track record of participation in a diversity of international organizations and regional summits, such as the Asian Development Bank, the Euro-Atlantic Partnership Council, and the Organization of Islamic Cooperation (OIC).5 Kazakhstan’s stance has periodically rendered it a gap-bridging actor in recent international politics. An example of this is that it is a founding member of the Conference on Interaction and Confidence-Building Measures in Asia (CICA). Beyond addressing notoriously tough conflicts such as Pakistani-Indian relations, CICA is the only international body besides the UN in which Israel and Iran are both member states.6

In accordance with Xi’s professed spirit of mutualism, the BRI presents a plethora of attractive opportunities to Kazakhstan. The country is rapidly developing, and president Nazarbayev has outlined a set of ambitious goals for the near future. According to its national website, Kazakhstan’s aims for 2030 includes improvements to national security, transportation and infrastructure, and open market-catalyzed economic growth.7 Even more ambitious is the country’s “Strategy 2050”, which outlines an endeavor for broad based restructuring into a diversified, knowledge-based economy in a bid to become one of the world’s top 30 most developed nations by that year.8 9 This is no small undertaking, especially given that Kazakhstan’s progress thus far has largely been supported by its heavy reliance on the oil and gas industry. Currently, about a third of its GDP and half of all export revenue comes from this sector.10 11 In order to diversify its economy, Kazakhstan is garnering significant foreign investment — particularly from China, which in the last decade has pumped in over $14 billion into its economy.12

Current Challenges
Theoretically, Kazakhstan represents an ideal environment for the BRI. Its geographical location, friendly international relations, relatively stable domestic political system, and increasing income levels both render its participation essential to the initiative and appears to minimize risk for foreign investors. Furthermore, its over-reliance on oil and gas shows clear room for the sort of growth that the BRI intends to provide to partner countries. Yet, a closer examination indicates that there may be serious roadblocks for China in Kazakhstan.

Kazakhstan’s positive relations with the international community are a double-edged sword for the BRI. There is a significant element of skepticism within the Kazakhstani populace that the BRI could leave Central Asia overly susceptible to Chinese influence. Kazakhstani professor Nargis Kassenova notes that as the government intensifies its relationship with China, “ordinary citizens seem to be growing more worried, with discussions of the ‘China threat’ serving as a staple of public discourse on security and the future of the country”.13 This friction cannot be ignored: in 2016, protesters who were fearful of increased Chinese influence successfully prevented the enactment of a policy that would have allowed for long-term foreign leases of agricultural land.14 15 The fear of unilateral Chinese investment also extends beyond Kazakhstan’s borders. Would Russia welcome a perceived Eastward drift of Kazakhstani relations with open arms? While the figure is declining, Russia is still Kazakhstan’s largest source of imports by far, at about 34% of total volume (China ranks second with 17%).16

Too often, analyses compartmentalize the China-Central Asia relationship, attempting to use monolithic statistics in order to assess the BRI’s progress there. In reality, no increase in trade volume or the mileage of high-speed rail alone, however significant, would represent comprehensive success, nor would it quell popular suspicion of China’s political motives. It will be challenging to validate China’s spirit of mutualism, ensure a return on its own investments, and maintain its attractiveness to other partners along the Silk Road, as well as to contribute to the economic diversification and broad growth Kazakhstan seeks.

Cooperating with Israel in Agro Tech: Kazakhstan and Beyond
With Israel, China would be better equipped to deliver promised changes to Kazakhstan’s economy. This is logical on the most general level: Kazakhstan ultimately aims to transition into an information-based economy; it would thus be beneficial for China to join forces with a country that has already fully completed that transition. More specifically, Israeli expertise would be particularly useful for the economic sectors that matter most. A Brookings Institute study identifies three — wheat, livestock, and logistics — in which Kazakhstan has the most untapped potential.17

Currently, Kazakhstan is one of the world’s major wheat producers, and it supplies many of its neighboring countries, including Russia with the majority of their total wheat imports.18 This said, Kazakhstan could be exporting far more to both existing and new markets. For example, Italy — Kazakhstan’s largest overall export partner due to oil sales19 20— receives less than 1.5% of its wheat from Kazakhstan.21 This is largely due to Kazakhstan’s agricultural inefficiency: Brookings reports that their average wheat yield per hectare equals roughly half of what top exporters like Canada can produce.22 In 2016 (the most recent year with available statistics), Kazakhstan ranked 65th in agricultural productivity, with an added value per agricultural worker (AVAW) of $7766.49.23

The potential Chinese upside for increased Kazakhstani wheat production efficiency is huge, as exports of this commodity could become a valuable source of demand for trans-Eurasian high-speed rail. Yet with a 113th-ranked AVAW at $1529.17, China is extremely unlikely to be able to sufficiently help Kazakhstan in this regard. Thus, there is an inescapable demand for third party agricultural tech, and with ten times Kazakhstan’s agricultural efficiency (and 50 times China’s), Israel is in prime position to provide it. Considering Israel’s previous agro-technological successes in Asia, such a relationship would also be extremely low risk. Established in 2006, the Indo-Israel Agriculture Project has established more than 25 advanced agricultural centers across India.24 Ultimately, any new Sino-Israeli agricultural cooperation would be the continuance of an existing relationship: at last month’s Agritech Israel convention, an Israeli company signed an agreement to teach dry-climate agricultural technologies and strategies to Chinese farmers in Shandong.25

Kazakhstan’s livestock industry is poised for growth because meat consumption is proportional to increased wealth.26 As Asia’s middle class experiences rapid growth, there will be a greater export demand for Kazakhstan. In addition to its aforementioned agricultural inefficiency, Kazakhstan does not currently possess enough of the meat-testing infrastructure assure to reach international sanitary and quality standards.27 Again, this is the sort of technology that Israel could readily provide. As China is in the midst of a five-year initiative to update its own food safety, it too could benefit from Israeli innovative expertise in this sector.28 As speed is necessary when shipping perishable goods, an improved high-speed rail system would be well positioned to service Kazakhstan’s regional exports in this sector. Thus, Israeli assistance in this sector could help increase traffic through the Khorgos dry port.

Israel possesses an endless wealth of advanced logistics companies to help with the BRI’s high-speed rail initiative through Kazakhstan, Uzbekistan, and Kyrgyzstan. For example, Freightos — an Israeli-run company that is incorporated in Hong Kong — has raised over $50 million to build pioneering services such as an International Freight Index, which compares shipping costs across different platforms in real time. If implemented, Israeli logistics technology could also help reduce the efficiency issues currently plaguing the Khorgos dry port, as transloading delays and lack of wagon availability are two of the major factors leading an average border crossing time of 10.6 hours.29

Israeli Precedent
Israel has an international track record that reflects Xi Jinping’s stated goals of economic globalization, coexistence, and the rejection of archaic Cold War-era political boundaries, as was discussed extensively in SIGNAL Note 43. After the discovery of large natural gas reserves in the eastern Mediterranean, Israel, Cyprus, and Greece established the “Energy Triangle,” a long-term extraction initiative. Mirroring China’s free-trade agreements in Kazakhstan, Israel and Cyprus established a joint exclusive economic zone with Cyprus in 2010.30 This was expanded upon with the signing of the Tripartite Energy Memorandum in 2013, which initiated plans to link the three countries’ electric grids via an underwater cable.31 Eventually, these treaties will manifest into an even wider trade infrastructure, mirroring the multinational connectivity that the BRI strives to achieve: on May 8th, the three countries reaffirmed plans to move forward with the EastMed Pipeline Project, which will deliver up to 20 billion cubic meters of gas to the European continent.32 These efforts show that Israel can pave the diplomatic channels into the European political-economic sphere for the BRI.

Conclusion
China’s BRI is based on the notion that development economics is inherently nonzero sum. Israeli involvement does not connote a necessary Chinese concession of economic fruits or political capital in exchange for augmented success in Eurasia. Rather, it would be a correct acknowledgment that a multifaceted approach suits today’s intricately connected global paradigm. Israel wouldn’t merely provide extra value to both China and Central Asia in the areas of technology, efficiency and economics. Israel’s long history of warm cooperation with Central Asian countries in general, and Kazakhstan in particular, could serve as a bridge to the Kazakhstani people. Many Israeli Jews hail from Kazakhstan and its neighboring countries, bringing a cultural understandings that could enhance economic connectivity and political cooperation to the benefit of all parties involved. Success in Central Asia would prove that the BRI has the potential to fundamentally improve hundreds of millions of lives on the Eurasian continent and beyond, and trilateral cooperation with Israel can help make that goal a reality.

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Author:Zachary Glass, SIGNAL’s Research Assistant
Published: 28-06-2018