A paramilitary policeman in front of the Shanghai Cooperation Organisation logo at Tiananmen Square in Beijing. The SCO might yet prove a useful forum within which to discuss security. ChinaFotoPress / Getty Images.
A paramilitary policeman in front of the Shanghai Cooperation Organisation logo at Tiananmen Square in Beijing. The SCO might yet prove a useful forum within which to discuss security. ChinaFotoPress Show more

India and Pakistan join the Shanghai Cooperation Organisation but its power to influence remains weak



Ten years ago, an unexpected and abrupt rejection of Pax Americana in an obscure part of Asia led to much discussion in foreign policy circles about a “new Nato of the East”. The Shanghai Cooperation Organisation (SCO), made up of Russia, China and four former Soviet Central Asian republics – Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan – had originally been formed in 2001, but it was four years later that the outside world sat up and took notice.

In 2005, the United States applied for observer status. This was granted to Iran, India, Pakistan and Mongolia. Not only did the SCO turn America down, however, but at the Astana Summit that year the group issued a communiqué calling for the withdrawal of US forces from Central Asia – and one month later Uzbekistan gave them notice to pack up their airbase at Karshi-Khanabad.

"The leaders of the states sitting at this negotiation table are representatives of half of humanity," said Kazakh president Nursultan Nazarbayev at the opening of the summit, signalling an ambition that regional experts acknowledged. The Washington Times quoted David Wall, of Cambridge University's East Asia Institute, saying that if the SCO expanded to include Iran and other countries, it could be "an enormous power" which "would control a large part of the world's oil and gas reserves and nuclear arsenal. It would essentially be an Opec with bombs".

By the end of the decade, however, as the Russia expert Mary Dejevsky puts it, the SCO seemed “to have vanished from the scene”. In 2007 the US State Department official who oversaw Central Asia, Evan Feigenbaum, was describing the SCO’s list of goals as “ambitious”, and showed how much attention the group was receiving in Washington by admitting to an audience at the Nixon Centre that the SCO “seems to make a lot of Americans’ blood just boil”. Two years later Feigenbaum concluded that “it is hard to point to concrete achievements in many of these areas”.

It appeared, ultimately, to be yet another international organisation that had lots of meetings and made lots of pronouncements but didn’t actually do anything of great significance– until recently, that is. For at this week’s summit in the Russian city of Ufa, the group was due to admit two new members – India and Pakistan. One Chinese official said it was a “milestone” for the SCO, justly, as it was the first expansion in the organisation’s history. And this, according to a commentary on China’s state Central Television website, was just the beginning, saying that “Iran and Mongolia are expected to become full members” while 18 other countries apparently “also hope to become SCO dialogue partners”.

On paper, the SCO could already point to some impressive statistics: its member states occupied “three fifths of the Eurasian continent” and made up about “a quarter of the planet’s population”. With India and Pakistan in the club, Nazarbayev’s grandiloquent “half of humanity” is no longer far off the mark.

In the past, the SCO had cooperated over security, boundary disputes – one of its original purposes – and countering terrorism and extremism, but divisions held it back from becoming the authoritarian counterweight that America feared. When Russia embarked on a short punitive war against Georgia in 2008, China expressed its “concern”, and the then president, Dmitri Medvedev, failed to win the group’s backing at that year’s summit. “Russia wants to be top dog,” comments Dejevsky, and by then it was clear that “it wasn’t going to be top dog in the SCO”.

Since then, however, the two leading members of the SCO have had greater reason to draw together. As the Indian diplomat KC Singh wrote in The Asian Age earlier this month: "Both Russia and China have looming stand-offs with the US and its allies, the former over Ukraine and the latter in the South China Sea. Both wish to redefine the Asian power structure and diminish America's role. Russia's proposed Eurasian Economic Union can mesh with China's 'One Belt, One Road'."

Sino-Russian convergence thus appears to make sense across the board on political and economic levels. The joining of India – historically close to Russia – and Pakistan – to China – helps keep both countries out of too American an orbit, with the possibility of an added peace bonus in the sub-continent. As the former Bangladeshi foreign minister Iftekhar Ahmed Chowdhury says, the SCO “provides yet another venue for the both of them to interact in. That in itself could be useful”.

On the surface, it might seem entirely possible that, in the words of China’s president, Xi Jinping, “SCO members have created a new model of international relations – partnership instead of alliance”. This would fit with China’s establishment of the Asian Infrastructure Investment Bank, a pattern of replacing what a former Russian deputy foreign minister calls “dinosaur structures of the Cold War past”.

Yet there remains a deep scepticism about how much flesh will be put on these new, non-prehistoric bones. Kerry Brown, professor of Chinese Politics at the University of Sydney and a former head of the Asia Programme at Chatham House in London, is doubtful that the revival of the SCO will come to much.

“It was their first stab at building a ‘world away from the US’ in their own backyard,” he says, “but the world has moved on from the SCO. China’s ambitions are now larger and more multifaceted, although I’m sure it will continue to give the SCO all sorts of rhetorical support.

“If it does have a second lease of life, it will be because China lacks a proper entity within which to have a security dialogue with many of its neighbours. This might be a benign way of achieving that. But this would be a hugely difficult, long, hard slog because in security terms, China and its neighbours don’t speak the same language at the moment, and there is no reason to see that problem disappearing any time soon.”

Some analysts believe that Russia is keen to use the SCO to further its ambition of reclaiming “great power” status. But Dejevsky thinks that beneath the glossy talk, there may be little of substance. “Russia has paid more diplomatic attention to China recently, but that seems to be more for appearance – to show ‘the West’ that it has other friends and other options – rather than signalling any sort of serious realignment.”

Ian Bremmer, president of the global political consulting firm Eurasia Group, agrees that the SCO’s influence will remain limited. “It exists as one of many interesting multilaterals where countries can discuss and coordinate away from the western powers,” he says. “But in terms of actually building alternative or competing architecture, the Shanghai Cooperation Organisation is not where the action is.”

In truth, the “Nato of the East” label was always hyperbole. The SCO’s joint military exercises were never meant to be construed as aggressive, as Chinese officials pointed out years ago. Indeed, they are on a mission to counter suspicion that there might be anything militaristic about China’s rise.

As Senior Colonel Zhou Bo, director of the Centre for International Security Cooperation at the National Defence Ministry, told the audience at ISIS Malaysia’s Asia Pacific Roundtable in Kuala Lumpur last month: “China is not assertive. China is not aggressive. China just wants to be loved by the international community.”

If the SCO ends up being “seen as little more than a talking shop”, says Chowdhury, “that has its value”. That is true in a continent where peace is still a prize. The SCO may be viewed as primarily a vehicle to serve the interests of its two leading members. But if it also helps promote “jaw-jaw” over “war-war”, we may learn to value it in years to come.

Sholto Byrnes is a Senior Fellow at the Institute of Strategic and International Studies, Malaysia.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

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“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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