Raffaello Pantucci

As usual have been delinquent in posting here. First up in my latest wave of material, a longer piece that has been in the works for a while with the wonderful Niva from the OSCE Academy in Bishkek for my old institutional publication the RUSI Journal. It explores the idea that China might be finally realizing its economic dreams for the Shanghai Cooperation Organization (SCO) through the Digital Silk Road.

Paving the Digital Silk Road with the Shanghai Cooperation Organisation

Largely disregarded or derided in the West, the Shanghai Cooperation Organisation (SCO) has grown since its humble beginnings into an important vehicle for Chinese digital and technology penetration in Central Asia. Raffaello Pantucci and Niva Yau show how China has managed to realise some of the economic goals that Beijing has long envisaged for the organisation, even if it has often found itself stymied by other members. In much the same way as the region has been a testbed for Chinese foreign policy approaches, the SCO now appears to have become a key locus for implementation of the Digital Silk Road.

When the Shanghai Cooperation Organisation (SCO) was founded in 2001, it was widely seen as an organisation focused on countering terrorism. Transformed from the ‘Shanghai Five’ to the SCO in 2001, and followed rapidly by the establishment of the Regional Anti-Terrorism Structure (RATS) in Tashkent, the organisation seemed of its time, reflecting the Global War on Terror launched by the US in the wake of the 9/11 attacks. Yet, while counterterrorism may have been interpreted as the organisation’s initial guiding rationale, each of the members had their own reasons for joining.

While China was clearly interested in the counterterrorism goals linked to Xinjiang that the SCO helped Beijing to achieve in Central Asia, its vision for the organisation was always grander. China’s longer-term aim was to transform it into a body which would aid its own economic, social, security and political penetration across the Eurasian landmass. Through the SCO, China would normalise its role as the major player in Eurasia, something Beijing was most keen to undertake in the economic domain.

Early statements about the SCO and its predecessor, the Shanghai Five, show the importance of the organisation in Beijing’s mind as more than simply a security institution. Seen through China’s eyes, the trajectory of the Shanghai Five to the SCO was one that started with border delineation, but ended with much wider ambitions, including economic goals that extended to realising a new ‘Silk Road’.¹ This built on a visit to the region by Premier Li Peng, who in 1994 laid out a vision of infrastructure and economic links tying China to its Central Asian neighbourhood.² But China has always struggled to realise these goals outside rhetorical statements. Initially, resistance came in the form of neglect, with the others refusing to take the organisation as seriously as China did. Over time, this turned into a more active sense of concern as the other members grew fearful of Chinese dominance – something that became even more acute as the Chinese economy boomed to become the second largest on the planet.

Guests take part in a documents exchange ceremony during the Thematic Forum on the Digital Silk Road, Beijing, April 2019. Courtesy of Xinhua / Alamy

Economic relations are increasingly front and centre with Central Asia and China. The SCO continues to exist but has changed over time. Most recently, it has grown into the digital domain, through which China has managed to dramatically expand its reach. The Belt and Road Initiative (BRI) emerged from the same strand of Chinese policy thinking that created the SCO, and built on a history of Chinese engagement with Central Asia. Starting in Central Asia (where President Xi Jinping gave the speech which inaugurated the concept in 2013),³ the BRI has now grown into a global vision for Chinese foreign policy, which has also landed on the idea of developing a Digital Silk Road (DSR). While the many strands of the BRI continue to exist, it is the DSR which is increasingly seen as the focus of China’s global struggle.

The SCO has also been caught up in this, increasingly moving into the digital domain. As with many other global trends, the coronavirus pandemic has sped up this process. Chinese firms and institutions have increasingly developed their links, interests and influence in this space. It has also provided an interesting set of new conduits to advance China’s attempts to turn the SCO into an economic actor. Pre-pandemic, the SCO was already moving its discussions towards e-commerce and digital and tech engagement, bringing itself into one of the increasingly central spaces of modern societies. Through digital technology, the SCO is at long last appearing to live up to the economic ambitions that China has harboured for it. This article is an attempt to sketch out the evolution of the SCO’s economic role, and to show how China’s Central Asian economic dreams and goals for the SCO are being realised through the DSR.

A New Multilateral is Born

The abrupt collapse of the Soviet Union in 1991 surprised leaders in Beijing, who quickly realised the need for border delineation with several newly independent neighbours. Always a contested space due to its remote and sparsely populated nature, the 3,000-km-long border China shares with the Central Asian states was of particular priority to Beijing as it defined a region, Xinjiang, with which it has a long and difficult history. In 1996, the first significant border security treaty between China, Russia, Kazakhstan, Kyrgyzstan and Tajikistan was reached, a group later termed as the Shanghai Five.⁴ A year later, China’s concerns about potential separatism in Xinjiang were brought to life when large-scale protests broke out in Ghulja (or Yinning).⁵ Its proximity to the border with Kazakhstan and the ethnic and community links that spanned the Kazakh–Chinese border highlighted the risks of uncontrolled borders.

While the focus on security and borders was the principal pragmatic concern for China in the Shanghai Five process, Beijing’s long-term strategy in Central Asia was already focused on building a strong economic presence and links. Then Chinese Premier Li Peng had already promoted the idea of reviving the old Silk Road during his tour of Central Asia in April 1994, when he stopped at all the capitals except war-torn Dushanbe. Travelling with Premier Li were a number of Chinese entrepreneurs, who were being encouraged to invest and look at opportunities in the region. Among the most prominent were engineers and executives from the oil and gas sector, who initiated negotiations to develop a natural gas pipeline to bring Turkmen gas across China to Japan, something Premier Li was regularly talking to Japanese officials and executives about back in Beijing.⁶ The importance of this economic agenda with Central Asia was later highlighted by the announcement in 1999 of the Great Western Development Plan, which sought to develop China’s western regions and boost trade with neighbouring countries.⁷

In 2001, the Shanghai Five evolved into the SCO, and expanded to include Uzbekistan. Tashkent had remained an observer until that point, lacking the same border delineation logic with China that determined membership of the Shanghai Five. Uzbekistan was also among the most fiercely independent of the Central Asian states, eager to avoid joining any regional or international security institutions. However, a series of terrorist incidents in 1999 and 2000 – which included cross-border attacks by Islamic Movement of Uzbekistan (IMU) militants into Uzbekistan, as well as a series of bombings in downtown Tashkent⁸ – highlighted the regional nature of terrorist threats to Uzbekistan in particular. This helped to change leader Islam Karimov’s perspective, as well as shape the budding organisation. Initially, the newly minted SCO seemed principally focused on security affairs, with the most visible first practical step being the establishment of RATS in Tashkent in 2004 (after some initial discussion about housing it in Bishkek).⁹ Counterterrorism provided a useful banner for the region’s leaders to gather around.

However, from a Chinese perspective, economics was always important. Speaking at the SCO’s founding conference, then Chinese President Jiang Zemin spoke of economic and trade cooperation as an important area of activity for the newly born international organisation.¹⁰ In 2003, Premier Wen Jiabao again stressed the importance of economic and trade cooperation in the SCO region, and went even further, proposing an SCO free trade zone and various initiatives to rid the region of trade barriers.¹¹ After identifying 127 investment projects to boost regional trade in September 2004, China also proposed financing mechanisms such as an SCO development fund and bank.¹²

Yet, while the security side of the SCO thrived,¹³ most of China’s economic initiatives failed to move forwards. Initially, Russia and Uzbekistan were wary of these Chinese projects, fearful of how they could alter regional economic and trade dynamics. Russia was worried about losing influence and markets that it had traditionally controlled, while Uzbekistan under Islam Karimov was a deeply inward-looking power, sceptical of Chinese and Russian initiatives. The other Central Asian powers engaged in the SCO were more welcoming of Chinese economic engagement – Kazakhstan embraced Chinese investment, while traditional aid recipient countries Kyrgyzstan and Tajikistan saw Beijing as simply another source of much-needed aid and investment.

For Russia, resisting China’s greater economic presence meant pushing towards an integrated Eurasian economic bloc that sustained the existing regional dynamic. Initially, Moscow was resistant to such ideas in the chaotic disintegration that came after the collapse of the Soviet Union. Fearful of the economic burden of carrying former Soviet states, Moscow was eager to separate itself from its former dominions in the mess that followed the collapse of the Soviet Union. This was met with pushback from the newly liberated Central Asian countries in particular. While the western-facing part of the Soviet Union was keen to break away, the eastern-facing part was less so. For example, Kazakhstan resisted these efforts, with former Soviet-era leader and then President Nursultan Nazarbayev proposing in 1994 the establishment of a Eurasian Union to continue the economic links across the former Soviet space and avoid the complete collapse of the intra-regional economies that existed.¹⁴

A year after Premier Li’s talk of reviving the Silk Road, the first agreements on establishing a unified customs union between Belarus, Kazakhstan, Kyrgyzstan, Tajikistan and Russia were reached.¹⁵ However, very little progress was made after this. It took almost two decades for these early treaties to materialise into more specific action, when Moscow saw the value of revitalising them to try to stymie China’s regional economic initiatives and restore some Russian primacy in the region. The result of this belated push has been that China’s regional economic initiatives must work with the Russia-led economic bloc, leading to the cooperation agreement between the Eurasian Economic Union (EAEU) and China in 2018.¹⁶ This was largely pushed through by Russia in direct talks between President Vladimir Putin and Xi, with no consultation from the other EAEU members.

All the Central Asian states were sceptical of China’s grand economic proposals to some degree. Kazakhstan, which over time became more confident in building its path to independence from Russia, sought to lead a Central Asian Union. China was seen as an opportunity in this regard, and Astana worked closely with Beijing to quickly finalise the Kazakhstan–China oil pipeline to secure an alternative source of income from the country’s rich energy reserves.¹⁷ However, at the same time, Kazakhstan opposed a completely open-door policy to Chinese investments. In 2003, when British Gas decided to sell its portion of the giant Kashagan oil field to CNOOC and Sinopec, KazMunaiGas (KMG), the Kazakh government’s representative in the consortium running the project, blocked the sale. It bought most of the share itself, and divided the rest among other consortium members.¹⁸ Kazakhstan has also refused repeated requests to grant Chinese nationals a visa-free regime,¹⁹ and has imposed strict employment quotas, joint venture requirements for projects and more – though some of these policies have been loosened over time.

Uzbekistan’s isolationist policy during the Karimov era stood directly against China’s regional economic initiatives, and created direct blocks on some of the proposed initiatives. For example, the Central Asia–China natural gas pipeline from Turkmenistan to China was first proposed in 1994, and it took Uzbekistan (a transit country on the route) until April 2007 to sign up.²⁰ By the early 2010s, Uzbekistan’s perspective was gradually changing. It sought ways to take advantage of the Chinese economic boom, while still retaining tight reins of control. This resulted in some illicit or grey trade, while the government slowly allowed China into some market sectors.²¹

Kyrgyzstan and Tajikistan have always maintained a certain level of ambivalence, although they have tended more towards seeking to attract Chinese money. On the one hand, as poorer countries, they were grateful for any investment and economic attention, while on the other, they were wary of the unfettered flow of Chinese products, recognising the resultant impediments it would create to domestic economic development. Some Kyrgyz experts and officials favoured joining Russia’s economic bloc to help to better manage the flow of Chinese products, blaming it for the poorly developed Kyrgyz manufacturing industry as it encouraged unsustainable reliance on re-export revenue.²² A similar sentiment is evident in Tajikistan, where local traders and producers have been squeezed out by Chinese products and traders.²³

This set of tensions prevented China’s grand regional economic initiatives from coming to life. The proposals of an SCO free trade area, an SCO development fund and bank have all largely stalled – although the development bank idea is periodically raised by the Kyrgyz and Tajik governments, as well as Beijing.²⁴ Instead, China has been restricted to bilateral economic engagement, and the SCO economic initiatives that did take off were confined to promoting dialogue, with regular meetings between economics and trade ministers, banks and business associations through the SCO Interbank Association and SCO Business Council. What trade promoting measures the SCO was able to advance, such as the SCO ‘Agreement on Facilitation of International Road Transport’ that was signed in 2014 and entered into action in 2017, are widely unknown on the ground.²⁵

This narrative has changed in recent years with the arrival of China’s BRI, which has increasingly subsumed and co-opted the SCO’s economic side. When talking about the transport agreement, then Secretary General Rashid Alimov stated that ‘the Agreement is the SCO’s practical contribution to the development and implementation of the Silk Road Economic Belt project’.²⁶ This narrative, where anything economic within the context of the SCO is rephrased to include Silk Road terminology, is increasingly common and has been highlighted once again by the arrival of the DSR.

Approved in 2015 by Chinese President Xi to be part of the BRI, the DSR aims to facilitate information and commercial connectivity through optical cables, satellite passageways, hardware and software, all alongside a long-term interdependence through e-commerce, tech-enhanced security measures and more. Legislation and standards are being increasingly harmonised as the SCO slowly turns digital. Since starting the SCO e-commerce working group in 2004, China’s push for digitalisation in the region has grown in leaps and bounds. In 2009, a unified electronic signature system to ease cross-border trade was developed;²⁷ in 2010, an SCO e-commerce online trading and investment platform was set up;²⁸ and in November 2017, the proposal of an SCO e-commerce industry trade association was made by a delegation including several Chinese e-commerce leaders.²⁹ A month later, for the first time, the development of a regional digital economy joined the list of important tasks identified by SCO heads of state in the joint communiqué released after the 2017 summit in Sochi, Russia.³⁰ After three years of negotiations, cooperation in the digital economy was agreed at the 2019 summit in Bishkek, Kyrgyzstan. Moreover, in the online Moscow Summit of November 2020, the heads of state grouping issued a communiqué on harmonisation and cooperation across the digital domains for commerce,³¹ IT security³² and counter-radicalisation.³³ E-commerce had gone from being a marginal activity to the basis of a core agreement at the organisation’s most senior summit.

Digitalisation: China Builds and Builds

The SCO developed alongside the world’s digital transformation. And, like many SCO activities, security came first. After pinning the 2005 Tulip Revolution in Kyrgyzstan on an alleged US disinformation campaign,³⁴ the SCO issued a statement during its June 2006 summit in Beijing, highlighting the role of information technology in ‘affecting all aspects of national security, including politics, economy, national defense, social culture, as well as the entire international security and stability system’.³⁵ Specific measures were laid out in an SCO Agreement on Cooperation to Guarantee International Information Security, which was signed into action by members in 2009.³⁶ At the same time, the RATS Center in Tashkent had sought to pioneer work on questions around online radicalisation and data protection. Data from member states on terrorist groups and threats was gathered, translated and disseminated.³⁷ Actions included the establishment of a working group targeting cyber security and online radicalisation, which would hold conferences and training sessions, and ultimately led to the first SCO cyber-terrorism exercise in Xiamen in 2015, of which more have occurred bi-annually since.³⁸ All of this took place at a moment when Central Asia started to take cyber security questions more seriously, with both Kazakhstan and Uzbekistan drastically improving their Global Cybersecurity Index score, from 0.19 to 0.79 and 0.17 to 0.68 respectively between 2014 and 2018.³⁹ Exactly what role the SCO played in this is unclear, but it certainly takes place in parallel.

As a landlocked region disconnected from the large international fibreoptic cables, broadband in much of Central Asia is extremely expensive. China has done a great deal to change this. Chinese tech companies are often the most affordable in the region – in part due to Chinese government subsidies to the companies back in China – and have rapidly gained a large presence in Central Asia. It should be noted they were early movers into the region, with Huawei and ZTE having been longstanding players in the region’s digital hardware. Huawei entered the region through Kazakhstan in 1998.⁴⁰ In 2000, Turkmenistan used ZTE to establish its first dial-up service.⁴¹ In 2001, Kyrgyzstan was given $10-million worth of free ZTE equipment via an intergovernmental gift to install a telephone network for 10,000 subscribers in Bishkek.⁴² By 2002, ZTE was installing a wireless telephone system for Kazakhtelecom, while the Kazakh company chose to use Chinese cables to upgrade its Europe–China internet cabling systems.⁴³ More awkwardly, both ZTE and Huawei signed contracts (likely as part of a wider agreement between the government and local authorities) with the Taliban government in Afghanistan in the late 1990s to establish a digital phone system in Kabul and Kandahar.⁴⁴

From this early start, they have made dramatic inroads. In Turkmenistan, where there are fewer than 10 operational Chinese companies in total, Huawei has provided around 45% of the country’s telecommunications infrastructure.⁴⁵ According to StatCounter, an online service that tracks internet usage, Chinese mobile phone providers have made considerable inroads into Central Asian markets. Samsung remains the dominant provider across the region, but Chinese manufacturer Xiaomi has grown to take an ever-increasing market share. In January 2020, the Chinese manufacturer overtook Samsung in Kyrgyzstan, and now controls around 45% of the local market (in comparison to 34% for Samsung, 10% for Apple and 6% for Huawei).⁴⁶ In all the other markets, Samsung is dominant, with Xiaomi and Huawei together supplying between a quarter and a third of the rest of the market, while Apple and other providers tend to make up the rest.⁴⁷ This metric is significant when one considers the Western push to reject all Chinese technology.

Looking to the internet and cyber storage infrastructure, companies such as Huawei and ZTE provide a growing proportion of today’s cloud and internet capacity in Central Asia. In 2014, Huawei entered into an agreement with the Karamay local government to create a cloud ‘model city’ to help establish a base for Xinjiang and Central Asian cloud services provided by the company.⁴⁸ In 2021, ZTE handed a SDM (Subscriber Data Management) platform to Uzbekistan’s

Bee­line, a data centralisation tool that allows for generating analytics, data sharing with third parties, monetisation and many other cloud-based functions.⁴⁹ Both firms have built large sections of the region’s new cyber infrastructure (3G, 4G and now 5G networks), including establishing factories regionally to build and sell home internet equipment.

Going beyond this, Russia and Central Asian states have in recent years welcomed China’s tech-driven approach to security by, for example, adopting ‘Smart City’ development models and projects with hundreds of cameras in their capitals.⁵⁰ Some of these deploy Chinese facial and numberplate recognition technology, and all rely on Chinese software and hardware. Some projects, such as Dushanbe’s traffic system, are implemented using official Chinese loans disbursed through the SCO mechanism to purchase Chinese products.⁵¹ These local network systems are also offered in didactic institutions, with Huawei in particular offering them to schools and universities across the region.⁵² While tools such as these are increasingly ubiquitous in major cities around the world, the key question is where the data that is being collected is being stored and how it may be used for China’s national security purposes.

Beyond networks, China has also recognised the role of digitalisation in developing an advanced economy. China’s domestic digital economy is among the biggest in the world, with giant national firms that have increasingly moved outside China. Russia and Central Asian states have also found this increasingly attractive, and have come to favour e-commerce cooperation with China. Alibaba reached more than 20 million active buyers from SCO-participating states in 2017.⁵³ AliExpress Russia, a joint venture between the Russian sovereign wealth fund (Russia Direct Investment Fund (RDIF)), Alibaba Group, MegaFon and Mail.Ru, was set up in October 2019 to smooth access to one another’s e-commerce markets and encourage cross-border cooperation.⁵⁴ In 2019, Alibaba founder Jack Ma declared that his company planned to generate some 100 million jobs and support 10 million small companies over the next few years, with a particular focus on the SCO area.⁵⁵ In 2021, a group of Chinese e-commerce experts and practitioners trained Uzbek governmental officials and businesspeople on managing the e-commerce space.⁵⁶ A growing number of smaller Chinese and Central Asian traders have also gone online in the past few years. The drastically improved e-commerce infrastructure in Central Asia has resulted in a significant increase in the region’s Business-to-Consumer E-Commerce Index score between 2015 and 2019, jumping from 25 to 35 for Kyrgyzstan, 26 to 45 for Uzbekistan and 37 to 69 for Kazakhstan.⁵⁷

Chinese and Central Asian companies have set up middleman websites to allow locals to purchase Chinese products more easily and cheaply online, while bilateral governmental efforts have been made to grant Central Asian products access to the Chinese market directly. This includes an official flagship store for Uzbekistan on Alibaba’s Taobao mall (also known as ‘Tmall’). With a large section of Uzbek confectionary, the store gained over 5,000 followers within a year of its opening in November 2019. According to Tmall data analysis, Russian sweets, Indian eyebrow powder, handmade dolls from Uzbekistan, dark chocolate from Kazakhstan and vodka from Kyrgyzstan are the favourite imported products for Chinese consumers.⁵⁸ These products now travel on the DSR, while the traditional large in-person trading markets in Dordoi and Barakholka are slowly being replaced by online malls.

Following the inclusion of the digital economy in the SCO list of ‘important tasks’ in 2017, as well as the SCO digital economy cooperation agreement in 2019, Chinese e-commerce leaders have found themselves at meetings with senior SCO figures. Alibaba CEO Jack Ma met Vladimir Norov, SCO Secretary General, for the first time in August 2019.⁵⁹ While the world was busy combating a pandemic in 2020, Norov had at least nine prominent public meetings with leaders of China’s tech world, including e-commerce giants such as Alibaba, Jingdong and Pinduoduo.⁶⁰ The timing coincided with a visible SCO push into the e-commerce space. In August and November 2020, two SCO experimental policy zones were opened in China: a Cross-Border E-Commerce pilot zone in Lianyungang and the Qingdao Development Center. Exact details on both are not very clear, except that they are intended to be major boosters to commerce and trade using online technology. First announced during the SCO Summit in Qingdao in 2018, the Qingdao Development Center was opened with typical Chinese speed two years later.⁶¹ The companies Norov met with all played a constructive role in pushing the SCO’s e-commerce agenda forwards. For example, Jingdong has committed $1.5 billion to build a smart industrial park within the Qingdao Development Center using advanced cloud computing to showcase China’s first-class supply chain technologies for cross-border e-commerce.⁶² In 2021, Kyrgyz officials proposed to open an e-commerce experiential logistics zone at the Qingdao Development Center for the export of Kyrgyz agricultural products to China, South Korea, Japan and ASEAN.⁶³ It is unclear what representation the other SCO member states might have at these institutions, although there was some suggestion that Kazakh companies were using the Lianyungang port already.⁶⁴

Unlike many of their counterparts in traditional industries, these Chinese tech giants seem to more actively recognise the merits of engaging in soft power building abroad. This is something they have all done globally, but in particular in Central Asia and often through SCO structures. Huawei, ZTE and Weidong Cloud Education began donating information technology tools to classrooms in Central Asian high schools and universities across the region in the early 2010s. Huawei’s own overseas academy, with Huawei lecturers and its own curriculum, opened in Uzbekistan in 2016⁶⁵ and Kazakhstan in 2017.⁶⁶ In just two years, the Kazakh branch had trained over 400 computer science students.⁶⁷ Huawei’s flagship ‘Seeds for the Future’ programme, a study and work programme for foreign computer science talents to spend time in China, is one of the most attractive programmes offered to Central Asian youth. Including travel and training in China, it is seen as guaranteed to offer good employment opportunities for graduates. The programme opened in Tajikistan in 2016,⁶⁸ Turkmenistan and Uzbekistan in 2017,⁶⁹ and Kazakhstan in 2018.⁷⁰ It is not clear whether it has been established in Kyrgyzstan, although the company has had a footprint and staff there since at least 2001.⁷¹

All these initiatives are fostering the next generation of Central Asian tech experts in Chinese standards and practices, and will inevitably strengthen China’s norm-making position in the digital industry within the region. There has already been something of a push towards Chinese standards and norms through various SCO working groups and engagement structures. Previously, there has been engagement in the cyber security domain on how countries could share best practice to stop the spread of extremist ideas online. There has also been some discussion about harmonisation in the digital commerce domain, including efforts to focus on making legislation compatible and learning from one another. The training programmes offered by Huawei and others provide a further point of engagement and influence. China is not only building, but also shaping, the future of the cyber and digital world in Central Asia (and further afield).

These companies have further continued this soft power push and increased their links and visibility alongside the SCO during the coronavirus pandemic. For example, Alibaba, Weidong Cloud Education and others continued to reach out to regional youth and political leaders using the digital space, and helped to organise a number of seminars and joint online events with the SCO. For example, Alibaba set up online COVID-19 treatment courses and engagements between Chinese doctors and their Central Asian and SCO counterparts.⁷² Moreover, Weidong’s contribution to helping children under lockdown to continue to receive teaching received a personal ‘thank you’ from SCO Secretary General Norov.⁷³ This work came in parallel with a substantial push by China to provide online health support and services, with doctors regularly holding online forums and videoconferences to exchange ideas and experience.⁷⁴ For example, in April 2020, a telemedicine system was set up in Uzbekistan between Jiangxi and Tashkent.⁷⁵

They also offered more classical forms of support. Alibaba, for instance, has been implementing further measures to help bring Central Asian products to the Chinese market.⁷⁶ In the backdrop of all this activity, there were dozens of medical donations from many of the leading Chinese tech companies to the region. Jack Ma’s personal foundation, for example, sent planeloads of aid publicly to all the countries except Turkmenistan.⁷⁷

What Next?

Chinese tech companies have emerged as leaders in advancing China’s goal to have the SCO become a regional economic force. From basic hardware such as fibreoptic cables and telecoms towers, to everyday smartphones and critical storage infrastructure such as cloud systems, they have made significant inroads across Central Asia, building a DSR through the region. Chinese online sales and payment platforms have followed, meaning China is building and delivering the region’s digital economic future. Throughout this process, the SCO has played an increasingly important role in facilitating and strengthening this push, finally living up to the hopes first articulated for the group by Jiang Zemin. As digitalisation proceeds with Chinese tools, Beijing is becoming a crucial player across the region’s critical sectors including security, trade and education.

Digitalisation is recognised by all member states of the SCO as an important step to development. China’s eagerness to share and sell its tech-driven practices and insights has thus been welcomed by SCO member states. Kazakh President Kassym-Jomart Tokayev has made digitalisation one of his most urgent tasks since taking office in spring 2019,⁷⁸ and he has focused on emulating the Chinese model. At a meeting on Kazakhstan’s future development, Tokayev praised China’s success. Pointing to a specific Chinese company, Hikvision, he said the company’s techniques ‘have gone far ahead, they deeply digitalized all major cities. You click on the screen, the data on the person comes out, including literally everything. When he graduated from university, where he goes in his free time, and so on … We need to go in this direction. This is a global trend. I set this task just before our capital’s leadership’.⁷⁹

Digitalising economies is a top priority for SCO leaders. In January 2021, as part of a push for country-wide digitalisation, Uzbek President Shavkat Mirziyoyev set a deadline: ‘by the end of this year, every industry and regional leader must make a radical turn in the digital economy’. He offered a 30% salary boost for those regional officials who improved digitalisation in their spheres of work.⁸⁰ It is highly likely that he intended them to use some of the Huawei technologies he had been introduced to during his visit to the company’s innovation centre and meeting with founder Ren Zhengfei in April 2019 on the fringes of the Belt and Road Summit.⁸¹

Digitalisation in Central Asia, as in many other developing regions, is centred on adopting existing technologies rather than developing indigenous ones. While domestic firms are preferable, these take time to develop and the marketplace is increasingly full of cheap, readily available options. Since the beginning, China has offered a cheap option that is easily accessible and often provided with loans. Having established a foothold, it will continue to be a dominant supplier of both hard and soft technology in the region. This means China will also end up exporting its norms and practices that govern the digital space. Given the growing digitalisation of entire economies and societies, China will also export norms in other areas such as security and trade. In these key sectors, Central Asian countries are set on a long-term path of reliance on Chinese technologies, with limited development of local capacity. In a worst-case scenario, this reliance – combined with a lack of local capacity – exposes Central Asian countries to deep potential national security problems, with little domestic capability to manage these things themselves. For example, a global attack on Chinese tech and tools could have catastrophic consequences regionally.

The dangers go in other directions as well. The dramatic and abrupt assault on Jack Ma brought his financial technology company Ant Financial’s huge initial public offering to a grinding halt and raised questions about the company’s future.⁸² This was a reminder of the Chinese Communist Party’s ultimate control over the country’s private sector, and a salutary notice to economies in which these companies are deeply enmeshed. Central Asia has already watched as other Chinese companies that had invested heavily in the region suddenly fell foul of authorities at home – the case of energy firm CEFC is instructive in this regard. After a sharp ascension around the world acting as a major player along the Belt and Road, the company was brought down dramatically in 2018 through anti-corruption investigations that have swept up CEO Ye Jianming.⁸³ Kazakhstan lost a $680-million investment, while Russia’s Rosneft lost a $9-billion investor. The Czech Republic found itself suddenly losing an investor that had purchased ‘the country’s oldest football club, Slavia Praha; a brewery; a share of the Travel Service airline group; a publishing house; a neo-renaissance building; a stake in the investment bank J&T Finance Group; and a building in the Czech capital Prague’.⁸⁴ These are stark reminders that over-reliance on Chinese firms can come with deep and unpredictable political risks and real economic repercussions.

Another curious risk was raised more recently with the expulsion from China of its cryptomining firms, which led to a large number choosing to relocate to Kazakhstan. While the Kazakh government initially seemed happy with this development, it has abruptly become a huge drain on the national electricity grid and is causing all manner of problems as a result, including forcing the country to renegotiate its electricity purchases from Russia. This unintended consequence of shifting Chinese domestic digital economies is another way in which the region is finding itself tied to China.⁸⁵

A further danger is posed by the global clash between the West and China, which has increasingly focused on the digital and tech sector. As the US and its Western partners push sanctions on Chinese firms, this will complicate the latter’s viability and the operating spaces they are in. It will also start to complicate relations between the West and third countries, such as those in Central Asia, where Chinese technology companies are a major provider. This is a wicked problem for some of the countries in Central Asia – while they might prefer the Western alternatives, these are simply too expensive, and they are limited in other possible options. And, at this point, they already have the Chinese hardware installed, meaning a cost should they want to completely remove it. The Chinese vendor thus becomes the most attractive, despite the potential consequences that come with it.

Russia’s tech sector lags behind China’s innovative applications. Leading Russian tech companies are confined within the post-Soviet space. Rostec, Russia’s military technology conglomerate, while underfunded, has tried to enter commercial markets where there is high Chinese competition. In June 2021, Rostec secured a deal in Uzbekistan to provide basic urban planning technologies for the advanced stages of its smart city.⁸⁶ However, Rostec is unlikely to be a serious rival for Chinese tech companies without Russian subsidies and loans. Ozon, which could be seen as Russia’s Amazon or Alibaba, had a market capitalisation of $2.4 billion at the time of writing (as compared to Amazon at $1.46 trillion and Alibaba at $249.64 billion)⁸⁷ and is inefficient in comparison to its international competitors that compete with it at home. The recent invasion of Ukraine has served to isolate Russia and its firms from the world, making them even less competitive in some ways.

Russia’s homemade consumer electronics have failed to penetrate even the post-Soviet market. Russian mobile telephone providers Beeline and MegaFon may be able to continue to dominate regional telecoms provider services, but their hardware is usually not Russian-made. Russian smartphone manufacturers Yota and Sitronics are almost unheard of. Furthermore, Russia’s country-wide adoption of Huawei’s 5G networks and Chinese technology more broadly will only further weaken the Russian tech sector in the years to come. India offers another possible option, but technology providers there are still very heavily focused on their own domestic market and trying to consolidate in the wake of the government’s vociferous expulsion of Chinese technology.⁸⁸

Russia and India offer another potential problem in geopolitical terms for Central Asia. Both are SCO members, but they have different relationships with China. India’s approach to China has long been two-sided, where on the one hand it is facing off near conflict, while on the other it is eager to engage. At the time of writing, confrontation over technology is at the forefront of the clash between the two countries, with India banning swathes of Chinese applications and seeking to curtail investment by Chinese companies such as Alibaba, Huawei and Xiaomi.⁸⁹ Russia has a warmer relationship with China, but it is one with tensions below the surface. There are, for example, growing concerns in Moscow about the country’s increasing over-reliance on Chinese investment, economic growth and technology (notwithstanding the growing push together as a result of the invasion of Ukraine). This presents Central Asia with problems in terms of potential alternative partners, as well as the SCO’s pre-eminence in this Chinese push. The potential exists for these broader geopolitical tensions to undermine the relationships built through the SCO and to create future problems for those in Central Asia that have enthusiastically embraced the organisation and the Chinese technology that comes with it.

Conclusion

As soon as the Soviet Union collapsed, China activated an effort for economic, social, security and political penetration across the Eurasian landmass. These goals were products of domestic concerns and a desire to define relatively opaque borders, and were initially delivered through the first international security organisation that China helped to create. The SCO provided a vehicle through which Beijing could build its relations with its Eurasian neighbourhood, starting with a security framework, but with an underlying economic and broader intent. However, realising these broader goals has proved challenging. China’s position in the world has transformed since the early 1990s, when the country was just escaping the shadow of the Tiananmen Square massacre and its economy was opening up. At the time, the SCO region was largely uninterested. Now, China is the world’s second-largest economy and a crucial trading partner for all SCO member states. But it has struggled to translate its economic dreams within the SCO into reality.

This has now changed through the DSR. As early movers in the region and supercharged under the broader Belt and Road vision, China’s tech giants have built a strong presence in Central Asia and are now increasingly engaging with the SCO, helping it to realise China’s longer-term economic ambitions. This new approach has seemingly managed to overcome previous concerns about China-led economic initiatives, but is laying the foundations for deep Chinese influence long into the future. The SCO might finally be helping China to fulfil its economic ambitions and checkmate the activity of others in Central Asia. As with much of China’s foreign policy approach to Central Asia, what Beijing has advanced and tested in this area is likely to be exported elsewhere. Learning from how the SCO has gone digital will help to create a wider understanding of how the DSR may play out in other contexts as well.

Additional information

Notes on contributors

Raffaello Pantucci

Raffaello Pantucci is a Senior Fellow at the S Rajaratnam School of International Studies in Singapore, a Senior Associate Fellow at RUSI and author of Sinostan: China’s Inadvertent Empire (Oxford University Press, 2022, with Alexandros Petersen).

Niva Yau

Niva Yau is a Senior Researcher at the OSCE Academy in Bishkek and Fellow at the Eurasia Program of the Foreign Policy Research Institute in Philadelphia.

Notes

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26. SCO, ‘SCO Promotes Transport Links’.

27. SCO, ‘Shànghǎi hézuò zǔzhī mìshū zhǎng zài 2009 zhōngxī nányà qūyù jīngjì hézuò lùntán shàng de zhìcí’ [‘Speech by the Secretary-General of the Shanghai Cooperation Organisation at the 2009 Central and Southwest Asia Regional Economic Cooperation Forum’], 4 September 2009, <http://chn.sectsco.org/news/20090904/16988.html>, accessed 14 August 2022.

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32. SCO, ‘Zayavleniye soveta glav gosudarstv-chlenov Shankhayskoy organizatsii sotrudnichestva o sotrudnichestve v oblasti obespecheniya mezhdunarodnoy informatsionnoy bezopasnosti’ [‘Statement of the Council of Heads of State of the Shanghai Cooperation Organisation on Cooperation in the Field of International Information Security’], 10 November 2020, <https://sco-russia2020.ru/images/108/46/1084605.pdf>, accessed 14 August 2022.

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69. Huawei, ‘Tǔkùmàn sītǎn’ [‘Turkmenistan’], <https://www.huawei.com/cn/sustainability/win-win-development/social-contribution/seeds-for-the-future/turkmenistan>, accessed 14 August 2022. Huawei, ‘Wūzībiékè sītǎn’ [‘Uzbekistan’], <https://www.huawei.com/cn/sustainability/win-win-development/social-contribution/seeds-for-the-future/uzbekistan>, accessed 14 August 2022.

70. People’s Daily, ‘Huá wéi zhōng yà chuàngxīn rì huódòng zài hāsàkè sītǎn jǔxíng’ [‘Huawei Central Asia Innovation Day Held in Kazakhstan’], 15 November 2017, <http://world.people.com.cn/n1/2017/1115/c1002-29648654.html>, accessed 14 August 2022.

71. As highlighted in note 41.

72. SCO, ‘With SCO Support, the Alibaba Group Hosted a Workshop on Countering the Spread of the Novel Coronavirus Infection’, May 2020, <http://eng.sectsco.org/news/20200514/647237.html>, accessed 14 August 2022.

73. SCO, ‘President of the Weidong Group Visits SCO Secretariat’, April 2020, <http://eng.sectsco.org/news/20200411/642503.html>, accessed 14 August 2022.

74. Raffaello Pantucci, ‘Beijing Binds: COVID-19 and the China-Central Asia Relationship’, Central Asia Program Paper No. 232, 19 June 2020, <https://www.centralasiaprogram.org/wp-content/uploads/2020/06/Beijing-Binds-COVID-19-and-the-China-Central-Asia-RelationshipCAP232.pdf>, accessed 14 August 2022.

75. Xinhua, ‘China-Uzbekistan Telemedicine System Put into Operation’, 25 April 2020, <http://www.xinhuanet.com/english/asiapacific/2020-04/25/c_139007696_2.htm>, accessed 14 August 2022.

76. UzDaily, ‘Chinese Platform Alibaba Simplifies Registration for Uzbekistan Merchants’, 10 August 2020, <<http://uzdaily.com/en/post/60623>, accessed 14 August 2022.

77. Raffaello Pantucci, ‘Beijing Binds: COVID-19 and the China-Central Asia Relationship.

78. Republic of Kazakhstan Presidential Palace, ‘Glava gosudarstva provel soveshchaniye po realizatsii Gosudarstvennoy programmy «Tsifrovoy Kazakhstan»’ [‘The Head of State Held a Meeting on the Implementation of the State Program “Digital Kazakhstan”’], 4 March 2020.

79. Kursiv, ‘Tokayev poruchil perenyat’ u Kitaya opyt tsifrovizatsii grazhdan’ [‘Tokayev Instructed to Adopt the Experience of Digitalisation of Citizens from China’], 8 October 2019.

80. UZA, ‘Prezident: Bez tsifrovoy ekonomiki net budushchego u ekonomiki strany’ [‘President: The Country’s Economy Has No Future Without the Digital Economy’], 22 September 2020.

81. Republic of Uzbekistan Presidential Press, ‘Prezident posetil Tsentr innovatsiy kompanii «Huawei»’ [‘The President Visited the Huawei Innovation Center’], 25 April 2019.

82. Jing Yang and Serena Ng, ‘Ant’s Record IPO Suspended in Shanghai and Hong Kong Stock Exchanges’, Wall Street Journal, 3 November 2020.

83. Ji Tianqin and Han Wei, ‘In Depth: Investigation Casts Shadow on Rosneft’s China Investor CEFC’, Caixin, 1 March 2018, <https://www.caixinglobal.com/2018-03-01/investigation-casts-shadow-on-rising-oil-star-101215272.html>, accessed 14 August 2022.

84. Jenni Marsh, ‘The Rise and Fall of A Belt and Road Billionaire’, CNN, 4 December 2018.

85. Paul Bartlett, ‘Kazakhstan’s Crypto Mining Boom Fizzles Over Power Supply Strain’, Nikkei Asia, 28 December 2021, <https://asia.nikkei.com/Spotlight/Cryptocurrencies/Kazakhstan-s-crypto-mining-boom-fizzles-over-power-supply-strain>, accessed 14 August 2022.

86. UzDaily, ‘Rostec to Take Part in the Project of the First “Smart City” in Uzbekistan’, 6 April 2021, <<http://uzdaily.com/en/post/64650>, accessed 14 August 2022.

87. Data from <http://finance.yahoo.com>, accessed 14 August 2022.

88. Sayan Chakraborty, ‘India’s Reliance Jio Takes Center Stage in Nation’s First 5G Auction’, Nikkei Asia, 29 July 2022, <https://asia.nikkei.com/Business/Telecommunication/India-s-Reliance-Jio-takes-center-stage-in-nation-s-first-5G-auction>, accessed 14 August 2022.

89. Sahkalp Phartiyal, ‘Firms in India Downplay Chinese Links Amid Wave of Anti-China Sentiment’, Reuters, 30 June 2020.