Belt and Road: China's unfolding opportunity in Afghanistan amid Taliban takeover

In the wake of the US withdrawal from the country Beijing will move quickly to fill any economic and investment vacuum

Much has already been written about the abrupt Taliban takeover of Afghanistan and the loss of political capital for western nations.

What is becoming clearer is that China in particular has an opportunity amid the US withdrawal from Afghanistan to make further progress on its long-term goal of being the main strategic partner for Asian countries.

China has moved quickly and its Foreign Minister Wang Yi met the Taliban’s co-founder, Abdul Ghani Baradar, in Tianjin at the end of last month. Mr Baradar said the Taliban could return to Kabul and regain power in 20-30 days. The rest is history.

To keep China on side, it would seem that Mr Baradar agreed at the Tianjin meeting that Afghanistan would join China’s Belt and Road Initiative once the Taliban regained control of the country.

Furthermore, Kabul will seek to become a full member of the Shanghai Co-operation Organisation as soon as possible, as Afghanistan draws fully into China’s orbit.

Any new government in Kabul is already facing financial problems as the International Monetary Fund (IMF) has said Afghanistan will no longer be able to access the lender's resources, with a spokesperson saying it was due to "lack of clarity within the international community".

Resources of over $370 million (£268m) from the IMF had been set to arrive on August 23. These funds were part of a global IMF response to the economic crisis.

Access to the IMF's reserves in Special Drawing Rights (SDR) assets, which can be converted to government-backed money, has also been blocked.

SDRs are the IMF's unit of exchange based on sterling, dollars, euros, yen and Yuan. The Chinese, with their substantial foreign exchange reserves, are sure to fill a temporary gap in the Taliban’s finances until the rest of the world grudgingly recognise facts on the ground and begin to re-engage with the Taliban administration.

Besides Afghanistan, the Chinese have already set out their grand economic vision, under the Belt and Road initiative, to draw many countries in Asia and the Middle East.

The ill-conceived US withdrawal has set alarm bells ringing in many of these countries over whether, unlike the Chinese, any Washington administration has the long term staying power and commitment to its allies.

Mr Wang Yi took a six-country tour of the Middle East in March, visiting Saudi Arabia, Turkey, Iran, the UAE, Oman and Bahrain.

Arab-Chinese relations are growing stronger and the two sides are working on arranging the next event of the triennial China-Arab Summit, as agreed at the ministerial meeting of the China-Arab States Cooperation Forum last year.

The summit is due to be hosted in the Middle East this time. This will presumably bring Chinese President Xi Jinping to the region for the first time since 2018, when he visited Abu Dhabi.

China is also hoping to push forward talks on a free-trade agreement with the Gulf Co-operation Council. All six countries Wang visited have signed on to China’s Belt and Road Initiative, along with Iraq, Kuwait, Lebanon, Qatar, and Yemen.

China’s Belt and Road Initiative is a multitrillion-dollar infrastructure scheme launched in 2013 by President Xi involving development and investment initiatives that would stretch from East Asia to Europe.

The project is designed to significantly expand China’s economic and political influence. More than 100 countries have signed agreements with China to co-operate in BRI projects like railways, ports, highways and other infrastructure.

According to a Refinitiv database, as of mid-last year, more than 2,600 projects at a cost of $3.7 trillion were linked to the initiative.

However, China said last year that about 20 per cent of BRI projects had been “seriously affected” by the coronavirus pandemic. There has also been pushback against BRI from some countries, which have criticised projects as costly and unnecessary.

But the temptation to copy others is always there and the US seems to have caught the bug of China’s BRI scheme.

US President Joe Biden said he suggested to British Prime Minister Boris Johnson in a phone call in March that democratic countries should have an infrastructure plan to rival China’s Belt and Road initiative.

The US has launched a new development finance institution to compete with China. Providing developing countries with more financing sources by itself will probably not change the picture very much, given the lessons of Afghanistan.

Developing countries have various funding sources already, and they prefer to use Chinese financing for big projects in transport and power for specific reasons. Private funding is too expensive and short-term (usually a maximum five years).

Western donors and their multilateral banks give grants or lend on extraordinarily generous terms. But these traditional donors prefer to finance social services, administration and democracy-promotion, as was the case in Afghanistan.

These efforts seemed to evaporate overnight with the Taliban takeover.

The westerners omitted hard infrastructure almost completely, providing the Chinese BRI an open field with visible projects.

Dr Mohamed Ramady is a former senior banker and Professor of Finance and Economics, King Fahd University of Petroleum and Minerals, Dhahran.

Published: August 19th 2021, 7:21 PM