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China-Central Asia Summit: “Beijing involved in a security issue for the first time”

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The China-Central Asia Summit convened on May 18-19 in Xi’an, the capital of China’s Shaanxi province. The summit, chaired by Chinese President Xi Jinping, was attended by Kassym-Jomart Tokayev of Kazakhstan, Sadyr Japarov of Kyrgyzstan, Emomali Rahmon of Tajikistan, Shavkat Mirziyoyev of Uzbekistan and Serdar Berdimuhamedow of Turkmenistan.

This was the first face-to-face summit between China and the leaders of the five Central Asian countries since the establishment of diplomatic relations 31 years ago. It was agreed to hold the summit on a rotating basis, with the next summit to be held in Kazakhstan in 2025. The leaders also agreed to establish a permanent secretariat of this mechanism in China.

“We’ll resolutely withstand foreign powers staging color revolutions”

“The sovereignty, security, independence and territorial integrity of Central Asian countries should be safeguarded, the development path independently chosen by the Central Asian people should be respected, and the Central Asian region’s efforts for peace, harmony and tranquility should be supported,” Xi Jinping said at the opening of the second day of the Summit, which began with a grand opening ceremony on the first day.

Xi also called for joint efforts to enhance strategic trust and strengthen security ties between China and Central Asia, saying, “We’ll resolutely withstand foreign powers interfering in the internal affairs of regional countries and staging ‘color revolutions’, have zero tolerance for the three forces (terrorism, separatism and religious extremism), and work to solve the regional security dilemma.”

Xi said China is willing to help Central Asian countries strengthen their law enforcement security and defense capabilities “to independently maintain regional security,” adding that China will support the “peaceful reconstruction” of Afghanistan. 

Declared goal: Expand trade and economic cooperation

According to state news agency Xinhua, Xi pledged to expand trade and economic cooperation with Central Asia and said Beijing would deepen connectivity in the region and expand energy cooperation, among other things.

Central Asia, “with its unique geographical advantage, can become an important interconnection hub in Asia and Europe,” Xi said, adding that he hopes to accelerate the construction of the China-Central Asia gas pipeline as well as the Line D gas pipeline (which will run from the border with Turkmenistan through the territory of Uzbekistan, Tajikistan and Kyrgyzstan) and expand the scale of oil and gas trade with the region.

The construction of the China-Europe Railway will be accelerated and Chinese enterprises will be encouraged to build overseas warehouses in Central Asian countries.

Cross-border transportation and logistics network between China and Central Asian countries will be improved, and joint work and projects in the context of high-tech and green development will be developed.

“We need to strengthen dialogue among civilizations,” Xi said, inviting Central Asian countries to join the “Cultural Silk Road” program. Xi noted that they will establish more traditional medicine centers and cultural centers in Central Asia, increase student exchange programs and interaction between universities.

Xi also announced that China will provide 26 billion yuan (USD 3.7 billion) in financial support to help Central Asian countries develop.

This year also marks the 10th anniversary of the “Silk Road Economic Belt” initiative proposed by Xi during his visit to Kazakhstan in 2013. In the decade since Xi launched the Belt and Road Initiative, trade between China and the five Central Asian countries has grown rapidly. Last year, it reached USD 70.2 billion, up 40 percent.

Beijing sees Central Asia as a critical frontier for expanding its trade and energy security. The region is also seen as crucial for stabilizing Xinjiang, where the Uyghurs are one of the most contentious issues between China and the West.

Three topics stood out: trade, security and cultural integration

We discussed the China-Central Asia Summit, its outcomes and future plans with Assoc. Professor Nurbek Isabay, Dean of the Faculty of Law at Astana International University.

“A great new page has opened for the Central Asian countries,” Dr. Isabay said, recalling that the United States also established such an initiative with the Central Asian countries in 2015, called C5+1, but underlined that this new format with China is very important for the Central Asian countries.

Isabay stated that Xi Jinping emphasized 3 important points in his speech today: development of trade corridors, security cooperation and cultural integration:

“The first point is very important for China. Before the war in Ukraine, there was the Trans-Siberian Railway through Russia. There is also the Central Corridor from Beijing to Europe through Kazakhstan and the Southern Corridor from China to the Caspian Sea and Turkey and then to Europe. A branch of this goes through Uzbekistan and Iran to Turkey and then to Europe.

There is also maritime trade through the Strait of Malacca, but since the US is trying to establish dominance there via Singapore, China is keen to diversify its trade routes without getting stuck in Malacca. The Trans-Siberian corridor, which was busy before the Russia-Ukraine war, is in trouble because of the war. Therefore, China is trying to mobilize the Southern Corridor through Central Asia.”

He said that the summit agreed to build a railway from China to Kyrgyzstan and Uzbekistan, and agreed with Kazakhstan to develop that infrastructure through the port of Kuryk and the Caspian Sea. According to Dr. Isabay, important agreements were reached on the development of trade corridors, and this is part of the strategy to revitalize the Southern Corridor.

Nurbek Isabay noted that in 2015, China set a target to increase trade volume with Central Asia to USD 70 billion by 2030, and last year the target was achieved, and emphasized that this data shows how dynamically the trade volume is progressing.

“China is filling the area left by Russia”

“The second important issue is security and defense. Xi Jinping emphasized that the sovereignty, independence and internal affairs of Central Asian countries should not be interfered with. There was a message of joint struggle against terrorism. He emphasized that China opposes color revolutions in Central Asian countries. I think Xi Jinping sent a message to both sides here. Both to Russia and to the West. In December last year, former Russian PM Medvedev made a statement claiming Kazakhstan and other Central Asian countries on behalf of Russia. Putin also made a speech in 2015 claiming that Kazakhstan has no state traditions. Russian MP Fyodorov has also previously made a speech claiming that northern Kazakhstan is Russian territory. Therefore, the emphasis in Xi Jinping’s speech on not allowing color revolutions and protecting territorial integrity sends a message to Russia, as well as a message to the US and the West. This is how the speech was interpreted in Kazakhstan public opinion,” he said.

Isabay emphasized that China will provide 26 billion yuan (USD 3.7 billion) to Central Asian countries for security and defense, and noted that Beijing has not been involved in the field of security outside of trade before, but it has been involved in this field in Central Asia, noting that this is a first. Stating that Russia’s influence in Central Asia has weakened with the war in Ukraine, Isabay commented that China is filling this gap in order to prevent color revolutions that may be attempted by the West. “China has been focusing on trade and cultural exchanges, which are its traditional methods in foreign policy, but for the first time, it has made its position on security and defense very clear,” he said.

“China was culturally alien to Central Asia, this gap is being closed”

“The third issue is cultural cooperation and integration. You know that one of China’s weakest points is the Uighur region. Kazakhs also live there. Officially, nearly 1 million 300 thousand Kazakhs live there. There are also Kyrgyz and Uzbeks in that region. Until now, culturally, China was alien to the Central Asian countries in terms of language, culture and lifestyle. However, in recent years, especially in the last 5 years, China has started to attach great importance to the Central Asian countries in the field of culture. Scholarship programs were opened in Chinese universities. At this Summit, student exchange programs were developed with agreements. Agreements were signed between Kazakhstan’s largest university and several Chinese universities,” Isabay said.

“Confucius institutes became influential in Central Asia,” he added, “scholarships were provided to students and researchers. As far as I know, there are nearly 70 Confucius institutes in Central Asia. There was also an agreement to increase the number of these institutes. Decisions were taken at the state level to intensify cultural integration. In other words, China was a cultural outsider in Central Asia, it was not recognized. Now it wants to close this gap.”

“Mechanism could be expanded with Türkiye”

According to Isabay, this mechanism may expand with other countries in the coming period. Pointing to Turkey in particular, “Developing the Southern Corridor is not possible without Türkiye. Xi Jinping said that this format will expand with other countries later on. Therefore, Türkiye is important here,” Isabay said. He also said that Azerbaijan, Georgia and Iran could also be included in this format.

Isabay noted that China’s growing influence in Central Asia is being discussed from Russia’s point of view, and said that official statements from the Russian Duma have come from Russia that they look favorably on this summit. “Even if Russia is uncomfortable, it will not openly express this discomfort in official terms due to its negative relations with the West,” he added.

ASIA

How will Trump’s potential tariffs affect Southeast Asia?

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Southeast Asia is worried about Donald Trump’s threat of universal tariffs and a new trade war with China. Five of the region’s six largest economies run a trade surplus with the United States.

But experts say the situation may not be so bad. The region, which tries to remain geopolitically neutral, saw an increase in gross trade with both China and the U.S. between 2017 and 2020 during Trump’s first presidency. Vietnam, Indonesia, Malaysia, and Thailand have benefited as companies from China, Japan, South Korea, Taiwan, and the U.S. have expanded their production bases in Southeast Asia to avoid U.S. tariffs.

Experts say exports and economic growth will take a hit in the short term, but the region could benefit from trade diversion and substitution.

What is Trump’s tariff threat?

The goal of Trump’s trade policy is to bring manufacturing jobs back to the U.S. and decouple supply chains from China. Trump and his advisers claim that China’s trade advantage is due to “currency manipulation, intellectual property theft and forced technology transfer”.

During his first term, Trump used executive powers to impose tariffs of up to 25% on $250bn of electronics, machinery and consumer goods imported from China. Beijing retaliated with similar measures on U.S. agricultural, automotive and technology exports.

Now Trump has proposed a 60 per cent tariff on all Chinese goods entering the U.S. and tariffs of up to 20 per cent on imports from everywhere else.

How bad could it be for Southeast Asia?

According to Oxford Economics, about 40 per cent of Cambodia’s exports go to the U.S., making it the largest exporter in Asean as a percentage of total exports, followed by Vietnam with 27.4 per cent and Thailand with 17 per cent. Thanavath Phonvichai, president of the University of the Thai Chamber of Commerce, said the Thai economy could take a 160.5 billion baht ($4.6 billion) hit if Trump fulfils his promises.

Vietnam has the world’s fourth-largest trade surplus with the United States. This imbalance has been growing rapidly as Chinese, Taiwanese and South Korean companies have used Vietnam to avoid Trump-era tariffs. Vietnam’s fortunes could change just as quickly, especially if the U.S. continues to classify Vietnam as a ‘non-market economy’, which requires higher tariffs.

Uncertainty over Trump’s tariffs could cause companies to pause or halt investment plans in Southeast Asia. U.S. companies accounted for about half of Singapore’s $9.5 billion in fixed-asset investment last year, according to the city-state’s Economic Development Board. In his congratulatory letter to Trump, Prime Minister Lawrence Wong was quick to remind him that the United States enjoys a “consistent trade surplus” with Singapore.

Any blow to the Chinese economy will have repercussions for Asean countries that depend on Chinese consumption, export demand and tourism. A reduced appetite for Chinese goods will also affect Southeast Asian suppliers of inputs to Chinese producers. Indonesia, Southeast Asia’s largest economy, will suffer the most because it exports 24.2 per cent of its goods to China, mainly commodities.

Unable to send their goods to the U.S., Chinese exporters may turn to Southeast Asia, where governments have faced complaints from local producers hurt by dumping in metals, textiles, and consumer goods.

What is Southeast Asia’s advantage?

Southeast Asia’s current manufacturing boom started because of the trade war. Over time, analysts expect trade substitution and diversion to outweigh the hit to growth.

“We think a stronger crackdown on China could lead to more supply chain diversion as Chinese companies trade and invest more in Asia,” said Jayden Vantarakis, head of ASEAN research at Macquarie Capital.

“Electric vehicle factories, which some Southeast Asian governments are aggressively pursuing, could provide an economic buffer. Demand for EVs is also growing outside the U.S., so I think there could be a net benefit for Indonesia. Smaller countries that are trying to be carbon neutral, especially as petrol prices get more expensive, will try to take over the supply and buy more electric cars,” said Sumit Agarwal, a professor at the National University of Singapore’s School of Business.

Trump’s promised tariffs could embolden Asean governments to impose anti-dumping duties on Chinese goods, as Thailand did on rolled steel this year. Stricter U.S. rules of origin could also give governments an opportunity to ensure that more high-value parts are produced and assembled locally.

How will Southeast Asian currencies and markets be affected?

Trump’s tariffs could reduce pressure on Southeast Asian central banks to ease monetary policy further.

“Essentially, Trump’s victory is inflationary for the world because of his planned tariffs, so the global monetary normalization or easing cycle will probably not be as sharp as previously thought, including in the Philippines,” said Miguel Chanco, chief emerging Asia economist at UK-based Pantheon Macroeconomics.

Speaking to Nikkei Asia, Chanco said Southeast Asian currencies will not strengthen as much as previously expected, partly because markets are re-pricing the pace of easing by the U.S. Federal Reserve and thus the dollar will continue to strengthen.

Among Southeast Asia’s six major economies, the Thai baht and Malaysian ringgit have been the worst-performing currencies since Trump’s victory, losing 3.2 per cent and 2.9 per cent respectively against the U.S. dollar through Wednesday.

Thai brokerage InnovestX recommended stocks that would benefit from a strong dollar and weak baht. These include companies with significant export earnings, such as CP Foods and Delta Electronics, or tourism-related companies such as Airports of Thailand, property developers and hoteliers.

Governments are already taking steps to reduce their over-dependence on the U.S. or China by deepening ties with other countries and regions and emphasizing their neutrality.

Southeast Asian economies in particular are also expected to focus on building resilience by strengthening intra-ASEAN trade.

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ASIA

Japan’s exports rise despite global risks, boosted by China

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Japan’s exports rose more than expected in October, driven by strong demand from China and other parts of Asia, despite growing uncertainties in global markets.

Exports increased by 3.1% year-on-year, led by significant growth in shipments of chip-making equipment, particularly to China, according to the Finance Ministry’s report on Wednesday. This marked a rebound following the first drop in 10 months in September. October’s figures exceeded economists’ forecasts of a 1% rise and were also bolstered by increased shipments of medical products to the United States.

Meanwhile, imports edged up by 0.4%, defying expectations of a 1.9% decline. As a result, the trade deficit widened to 461.2 billion yen ($2.98 billion), compared to 294.1 billion yen in the previous month.

This stronger-than-expected export performance has raised optimism about Japan’s economic recovery. Although the country’s gross domestic product (GDP) expanded for the second consecutive quarter through September, the pace of growth has been tempered by the drag from net exports.

“Today’s data raises hopes that external demand will revive in the October-December quarter,” said Hiroshi Miyazaki, Senior Research Fellow at the Itochu Research Institute. “The Chinese government’s stimulus measures have stabilized its economy and reversed the prior decline.”

Exports to China rose by 1.5% last month, rebounding from a 7.3% drop in September, with semiconductor manufacturing equipment exports surging by nearly a third. These gains align with signs that China’s stimulus policies are beginning to yield results, driving growth in certain sectors and boosting consumer spending.

Notably, Japanese exports grew despite the yen’s strengthening against the dollar, averaging 145.87 yen per dollar in October—2% stronger than the previous year, according to ministry data.

The export rebound occurs against a backdrop of heightened concerns about global trade policies. Business leaders are bracing for the potential return of Donald Trump to the White House, with fears that his proposed tariffs—60% on imports from China and 20% on other nations—could disrupt international commerce.

Some regions are already experiencing a slowdown. Shipments to the United States and Europe declined by 6.2% and 11.3%, respectively, in October.

The Bank of Japan (BoJ) is closely monitoring these developments. BoJ Governor Kazuo Ueda noted on Monday that while the Federal Reserve’s prospects for a soft landing have improved, risks tied to the U.S. economy and their impact on global markets require careful consideration.

The most pressing concern for Japan’s trade outlook is the impact of potential U.S. tariffs. Historical data from the U.S.-China trade war (2018-2019) suggests that a 1% increase in export prices, including tariffs, led to a 0.35 percentage-point reduction in profit margins for Chinese exporters, according to research from Stanford University’s Centre for Chinese Economics and Institutions. A similar scenario could hurt Japanese firms’ profitability, counteracting gains from the yen’s depreciation.

“We are not yet at a stage where Trump’s tariff policy is clearly impacting export volumes or exporters’ behavior,” Miyazaki told The Japan Times. “However, there remains significant uncertainty, and we must continue to monitor the policy stance of the next Trump administration,” he added.

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IMF reviews Pakistan’s $7bn bailout

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An International Monetary Fund (IMF) team conducted an unscheduled visit to Pakistan last week to assess the country’s progress on the terms of its $7 billion bailout package. The surprise visit, coming less than two months after the loan’s approval, has raised questions about the future of the bailout program. IMF staff are expected to present their findings to the Washington-based executive board for review.

What prompted the IMF’s unexpected visit to Pakistan?

Several officials, speaking to Nikkei Asia on condition of anonymity, highlighted key factors prompting the visit. These included a $685 million shortfall in the government’s tax collection target for the first quarter of the current fiscal year and a $2.5 billion deficit in the external financing required under the bailout terms. Compounding these issues was the failed sale of Pakistan International Airlines (PIA), a key component of the IMF-recommended privatisation drive.

While routine IMF program review visits are standard, the timing of this visit—just seven weeks after board approval—has raised concerns. “This suggests significant difficulties in implementing the program,” said Naafey Sardar, an economics professor at St. Olaf College in the United States, speaking to Nikkei Asia.

Ikram ul Haq, a lawyer specializing in economic and tax policy, added, “The reality is that the government’s promises to the IMF have not been fulfilled.”

What were the key issues discussed?

The IMF raised the issue of the tax gap and urged action to ensure that Pakistan meets its annual tax collection target of $46 billion.

Islamabad was also asked to engage with Saudi Arabia and China, the largest investor, to bridge the external financing gap. Promised energy sector reforms and the repayment of billions of dollars of debt owed to mostly Chinese-backed power plants in Pakistan were also discussed.

Another issue was for the IMF to press provincial governments for more funds, such as the Benazir Income Support Programme, which provides a $2.1 billion annual cash transfer for poverty alleviation, currently paid for by the central government.

How does agricultural income tax fit into this picture?

As part of the loan agreement, Pakistan’s provinces missed an end-October deadline to harmonize their agricultural income tax laws with the federal income tax.

The IMF had previously said that Pakistan’s loan agreement would be in jeopardy if agricultural income remained largely untaxed. During the meetings, provincial government officials told the IMF that they would face significant difficulties in implementing a higher tax.

Economist Aqdas Afzal said such a move would face significant opposition from big landowners, who are disproportionately represented in the federal and provincial assemblies.

“Given the weak mandate of the current government, a higher agricultural income tax is unlikely as it could trigger major social and political unrest,” he added.

What assurances has the government given to the IMF?

Pakistan has assured the IMF that it will increase the provincial agricultural income tax rate by up to 45 percent. It has also pledged to meet annual tax collection targets and to continue reforms in the energy sector and state-owned enterprises.

“This is an ongoing dialogue process and there have been discussions [with the IMF] on energy and SOE reforms, the privatization agenda and public finance,” Pakistan’s Finance and Revenue Minister Muhammad Aurangzeb told local media.

Haq, a tax expert, said the government’s primary focus would be on meeting the six-month revenue collection target set by Pakistan’s Federal Board of Revenue, a government agency that regulates and collects taxes.

What are the challenges ahead for Pakistan’s loan agreement?

Meeting tough tax targets and implementing structural reforms are major hurdles for the government to overcome.

The IMF has previously cancelled other loan programmes when conditions were not met. Payments to Pakistan could be suspended or stopped altogether, which would be a serious blow to a country struggling with a sputtering economy.

The IMF is pressing for cuts in government spending.

“Structural reforms are being resisted by vested interests, making efforts to meet IMF conditions even more difficult,” Haq said.

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