China vs. India: Economic Outreach to Central Asia

In their quest for economic growth and energy security, China and India share the importance of reliable, seamless connectivity with Central Asia. In pursuit of this interest, Beijing and New Delhi have embarked on major initiatives to strengthen their ties with the five Central Asian states. An examination of the data shows that despite shared interests and ambitions, China and India’s economic footprints in the region differ significantly. China has significantly strengthened its influence in the region over the years, while New Delhi’s presence remains muted due to limitations in state capacity, geography and strategic preferences.

China and India are among the largest economies in the world. To support their growth, they need reliable, diversified businesses access to external markets And energy sources. Central Asia is emerging as a crucial partner in the Sino-Indian drive for economic development, as reiterated separately organized meeting meetings between China, India and the five Central Asian states in 2022.

The combined population of the five Central Asian states – Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan – is near 80 million, with increasing consumer demand, which brings business opportunities. The area is in a geostrategic location connects Europe with Asia, nestled between major powers such as Russia, China and India. Furthermore, Central Asia holds more than 4 percent of some of the most important in the world sourcessuch as oil, gas and critical materials.

Against this backdrop, Central Asian states can become invaluable trading partners, trade channels and energy suppliers for China and India. To double down on these commercial opportunities, Beijing and New Delhi have established policies aimed at strengthening their ties with Central Asia.

India, which regards the region as its “extensive neighborhood”, stated the “Connect Central Asia” policy during Foreign Minister E. Ahamed’s visit to Kyrgyzstan in 2012. The initiative aims to strengthen security, political, economic and cultural ties between India and Central Asia. India pledged to cooperate with the Central Asian republics in various areas such as raw materials, steel production, air and land connectivity and banking.

Similarly, China also reached out to Central Asia in an effort to improve connectivity with overseas markets. President Xi Jinping suggested the “Silk Road Economic Belt” (SREB), a large-scale connectivity program in 2013 during a state visit to Kazakhstan. The SREB is the land-based pillar of China’s Belt and Road Initiative (BRI), which combines different forms of connectivity to deepen international relations and trade. Currently the number of participating countries is exceeds 150, included states from Europe, Africa, Asia, Oceania and the Americas.

Despite their shared interests and ambitions regarding Central Asia, there are major differences between China and India’s economic footprints in the region.

China consolidated its ties with Central Asia by completing several connectivity projects. The Khorgos Gateway, a container terminal in Kazakhstan, opened in 2015, facilitate land transport between China and Europe. Today these are China and Kazakhstan linked via at least five oil and gas pipelines, rail trunk lines, and a Center for International Border Cooperation. In Uzbekistan, the China Railway Tunnel Group completed the Qamchiq Tunnel in 2016, which is part of the Angren-Pap railway line.

China’s commitment to large-scale infrastructure projects led to a steady expansion of investment in the region. According to aggregated facts from Central Asia statistically and sofa authoritiesDuring 2018-2023, Chinese investment in Central Asia exceeded $1 billion every year, reaching approximately $2 billion in 2023. This makes China one top foreign investors in the region, together with the Netherlands, the United States, Russia and Switzerland. China belonged to Tajikistan largest source of foreign investment for at least five years, and Chinese investments represented about 7 percent of gross direct investment inflows into Kazakhstan in 2023.

Commercial ties between China and Central Asia have also deepened over the years. China’s two-way trade with Central Asia more than doubled from $41 billion in 2018 to almost $90 billion in 2023. This represents approximately 1.5 percent of total Chinese trade, i.e. a share comparable compared to that of France, which is Beijing’s third largest trade route partner in the EU. China is one top trade counterpart of Central Asian countries for years and became Kazakhstan’s largest commercial partner in 2023.

In contrast, New Delhi’s footprint in the region is characterized by partial achievements. 2017 marked the inauguration of the first phase of Iran’s Chabahar port, a India-supported connectivity hub that will allow New Delhi to reach Central Asia via Afghanistan. In 2018, New Delhi connected the Ashgabat Agreement, which makes this possible to collaborate including Uzbekistan, Turkmenistan and Kazakhstan, to deepen connectivity between Europe and Asia. By 2022, the eastern part of the International North-South Transport Corridor – a multimodal logistics route connecting India with Russia – will started operational, deliver goods via Central Asia.

Regardless of these preliminary results, Indian investments in the region are only a fraction of China’s. In 2018, direct investment flows from India to Central Asia exceeded US$45 million, but fell to around US$30 million in 2023. Kazakhstan is a major destination for Indian investments in Central Asia, but in 2023 India was not among the top 30 from sources. of gross foreign direct investment inflows there. India ranks slightly higher as a foreign investor in Kyrgyzstan, but lags far behind China and other major players such as Russia or the United States.

Like India’s investments, India’s trade with the region has long been operating below potential. For example, New Delhi’s actual trade turnover with Central Asia in 2015 was six to ten times lower than potential. according to to calculations based on a gravity model of trade. The trend continues to exist to this day. During the period between 2018 and 2023, India’s two-way trade with Central Asia was around $1 billion to $3 billion per year, and has even declined recently. In 2023, India’s trade turnover with Central Asia will be barely exceeded $1 billion, representing less than 0.5 percent of India’s total trade, and only a fraction of China’s total trade with the region.

The pronounced differences between China and India’s economic presence in Central Asia are rooted in three factors: state capacity, geography, and competing strategic imperatives.

In terms of state capacity, China is the largest second largest economy in the world with stretched out financial sources at his disposal. As it aspires to diversify it’s commercial trajectories to Europe to strengthen ties with its major trading partners such as Germany and France, Beijing can leverage these resources build on on its vast network of state-owned enterprises Unpleasant implement the BRI.

While India is among the fastest growing economies of the world, this is still the case remains behind behind China. When it comes to outward investment, private companies are stepping up dominant players in the foreign financial sector activities. Such entities are more interested in profit than in policy implementation, which tends to direct financial flows towards developed economies rather than Central Asia. While India’s foreign investment profile is improvethat still needs to be done to overtake with China in terms of scale and efficiency.

The challenge to Indian state capacity is compounded by the tyranny of geography when it comes to Central Asia. While China is a direct neighbor of Central Asia, India struggles to reach the market at all. Afghanistan and unfriendly Pakistan lie between India and Central Asia. block direct access to the region.

India could mitigate these challenges by participating in Chinese-funded projects. The BRI is one open ended program and China has been try Unpleasant to get India is participating. India, however, has been hesitant to extend support to the BRI. On the one hand, the BRI’s flagship project, the China-Pakistan Economic Corridor (CPEC), passes through Kashmir, an area disputed between Pakistan and India, and the resulting sovereignty concerns prevent India from joining the Chinese initiative to connect. On the other hand, India is concerned about the financial sustainability of BRI projects, further hampering New Delhi’s participation.

Long story short: Central Asia plays a prominent role in China and India’s strategic analysis. China has an advantage in terms of economic strength in the region. Given the strategic differences in Sino-Indian relations, India’s initiatives to connect with Central Asia are independent of China’s.

Central Asian states will benefit from this dynamic as they can diversify their trade and investment partners to reduce their dependence on other powers, such as Russia or the United States. Kazakhstan has already recognized this opportunity use its relationship with multiple major powers to cultivate its economic growth and independence. As the Sino-Indian push for markets and energy unfolds, other Central Asian states may follow suit.