China’s presence and influence across the globe today is immeasurable. From Ecuador and Ghana, to Sri Lanka and Mongolia, Chinese companies are racing to develop new infrastructure projects and secure lucrative commodities deals. As a result, in many parts of the world China has emerged as the largest source of foreign direct investment, the largest source of development finance, and the largest creditor. These developments also turned China into the largest impact-maker for many states, whose economic well-being and socio-political status are now reliant on Chinese initiatives.
In well-governed states, Chinese projects have the potential to drive economic development in a sustainable and responsible way. However, in weak states, where state institutions are weak and local populations are typically excluded from development processes, Chinese projects face the added burden of building trust and cooperation with local stakeholders. Such developments are particularly reflective in the extractive mining industry. It appears that resource nationalism mixed with Sinophobia becomes a “time bomb” that can continue ticking until the first major triggering event. There is already a growing number of examples that expose an emerging trend of anti-Chinese preferences in the politics of extractives, as Chinese companies become the targets for the indigenous communal ire.
In the summer of 2019, our research team conducted related fieldwork in 15 mining-affected localities of Kyrgyzstan. Kyrgyzstan is a small mountainous country that is endowed with significant deposits of gold. However, ever since acquiring its independence from the Soviet Union in 1991, Kyrgyzstan has been unable to benefit from its mineral resources and remained one of the poorest countries in the post-Soviet space. Despite the efforts of Kyrgyz governments to develop the sector, gold mining still comprises less than 9% of Kyrgyzstan’s total GDP and is consistently mired by conflicts between local communities and foreign investors. These conflicts often take on violent forms such as burning exploration camps and damaging mining hardware. Accordingly, our fieldwork sought to investigate sources of mining conflict in Kyrgyzstan. This research was part of the collaborative project “Gobi Framework for Sustainable Infrastructure Partnerships” between the University of Oxford, Independent Research Institute of Mongolia (IRIM) and University of Central Asia (UCA). The project sought to develop a framework for sustainable infrastructure development to promote inclusive economic development and social welfare in the context of Chinese mega-infrastructure initiatives in Central Asia and Mongolia.
The findings of our fieldwork were alarming: while resource nationalism has emerged as an uneasy theme in politics of Kyrgyzstan, the involvement of Chinese companies in the extractive industry of the country complicated the matter further. In mining-affected localities, anti-Chinese sentiment was expressively strong, as it has emerged as one more factor that hinders the mitigation of mining-related conflict. Local communities resorted to anti-Chinese narratives in order to express their grievances. They were more open to welcoming Russian, European, or Central Asian investors, and were rather cautious about Chinese businesspeople. In some instances, local communities had never even interacted with their Chinese counterparts before, and all their perceptions were based on stereotypical assumptions, cliches and fear. As one interlocutor complained, “We read it on the Internet. They use different chemicals. They can produce anything, even fruits and vegetables are not organic. We hear a lot about this, and we read about this. We hear that their products have too many chemicals. It is not only in Kyrgyzstan. It is everywhere.”
As a result, perceptions that Chinese investors are contributing, even if indirectly, to social injustices make Chinese people easy targets for the aggrieved to unite against and express their anger in violent forms. In most instances, the real sources of mining conflicts are much more nuanced, especially when accounting for local residents’ unfulfilled hopes regarding work and quality of life. Yet, the “Chinese factor” emerges as an effective mechanism for public protests to take off. As one interlocutor noted, “Local residents see Chinese company’s representatives arriving to the administration in a flashy car. They go out of the office with the head of the local administration together, shaking hands. So, the locals think that their leader sold them out.” In August 2019, anti-Chinese protests at the Solton-Sary mine in Kyrgyzstan turned into a mass brawl and forced Chinese mining company Zhong Ji Mining to fully halt operations. In February 2020, anti-Chinese protests in one of the poorest and most remote localities of Kyrgyzstan foiled the prospects of a US$280 million joint Sino-Kyrgyz logistics venture. Local communities believed that there was a murky arrangement between the Kyrgyz government and Chinese investors behind the scenes and thus fought against the prospective venture.
Such developments are not particularly exclusive to Central Asia. While Chinese mining companies become more active internationally, the resistance to Chinese economic outreach is also growing globally. As Chinese capital ventures into new territory, the speed and scale of Chinese investments create new challenges to recipient states. From demanding better social benefits packages to calling for the termination of alleged environmental pollution, local communities actively express their grievances, and Chinese mining projects across the world more and more often suffer from negative publicity. Such confrontations leave a negative imprint on the investment climate as well. An investment climate is generally understood as a set of variables such as costs and risks that impact the decision of companies to invest in a certain sphere.
Kyrgyzstan’s foreign direct investment (FDI) in 2020 already decreased by 31% compared to 2019, the bulk of which otherwise would have likely gone towards manufacturing, mining and geological exploration. As China accounts for the largest share of Kyrgyzstan’s FDI, anti-Chinese protests in Kyrgyzstan are likely to deter Chinese entrepreneurs from investing in the Central Asian country. In order to bolster Kyrgyzstan’s mining operations so that it becomes a key sector of the Kyrgyz economy, a comprehensive set of measures that guarantees investors’ rights must be implemented. Without mutual trust between both the host country and investors, it is unlikely that the Kyrgyz economy will see substantial progress.
That said, a healthy investment climate is not only about creating favorable conditions for companies to generate profit. A positive investment climate must also create favorable conditions for local communities to improve their quality of life, in order to produce a symbiotic relationship between investors, local communities, and the host country’s government. Because mining is a capital-intensive industry and thus is not a major job generator, this can be achieved predominantly through mining companies’ contributions to the state budget in the form of taxes, royalties, and duties, which then should be returned to the community in the form of goods and government-funded services. Therefore, as the key recipient of the value generated by the mining sector, it is the government of Kyrgyzstan that is directly responsible for ensuring the delivery of the welfare effects of mining to all mining-affected communities.
Kyrgyzstan’s case demonstrates that while China’s economic projects can stimulate economic growth and have a transformational effect on small and impoverished states, they can just as easily deepen existing fault lines and feed into long simmering communal anxieties and grievances. As a result, Chinese investors, the Kyrgyz government and local communities all lose from such standoffs. Such practices have to change in order to mitigate these issues; the development of the mining sector should not be a zero-sum process, and all stakeholders should strive to achieve better outcomes.