Like SAARC the Shanghai Cooperation Organization may lose steam if geopolitical rivalries and low volumes of intra-group trade continue
The Shanghai Cooperation Organization’s 23rd summit was held in the virtual mode on July 4, with India in the Chair. But given the deep-seated contradictions between India and China and between India and Pakistan that were seen in the proceedings of the summit, doubts have arisen over the prospects of the organization.
And the low volume of intra-SCO trade and investment is only adding to the weakness of the structure.
If the 32-year old SCO is to avoid degeneration and irrelevance that mark SAARC, its members will have to stop pursuing their narrow and divisive nationalistic interests, go beyond issues of security, and actively promote intra-group trade and investment.
A divided SCO, lacking in a sound economic base, may gravitate towards bilateral relations, as indeed members of SAARC have done following its atrophy due to the India-Pakistan conflict, mutual suspicions and fears of Indian domination.
The SCO comprises the Central Asian republics of Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan, plus China, Russia, India, Pakistan and Iran. Belarus is to join in 2024.
As on date, Intra-SCO trade is basically bilateral trade between China and the Central Asian republics. Commenting on the dismal state of intra-SCO trade, the Chinese news agency CGTN said: “The SCO is hampered by economic differences among its members. To close the gap and encourage inclusive growth among member countries, which differ in economic development and resource availability, coordinated measures are needed. Economic imbalances must be addressed through cooperative projects and shared development plans to achieve sustainable regional cooperation and guarantee fair benefits for all member nations.”
Olesya Dovgalyuk points out in her paper in www.lowyinstitute.org that in contrast to the Eurasian Economic Union (EAEU) and BRICS grouping, SCO does not have a comparable financial institution for joint development funding.
“The SCO’s Business Council is working to cultivate a cross-regional business ecosystem by supporting individual start-ups and humanitarian projects; however, the piecemeal funding it attracts comes from private investors,” Dovgalyuk says. She attributes this to a lack of trust in each other. The members appear to have a preference for other platforms or bilateral dealings, she adds.
China Dominates Bilateral Trade
China Dominates Bilateral trade with Central Asia. After the collapse of the USSR, China has become the largest trading partner of Kyrgyzstan, Turkmenistan and Uzbekistan, and the second largest trading partner of Kazakhstan. It is the third largest trading partner of Tajikistan.
China’s trade with the Central Asian countries increased to US$ 70.2 billion in 2022 from US $0.46 billion in 1992. Bilateral trade volumes saw a 40% growth in 2022 over 2021. China imports agricultural, energy and mineral products from the five countries and exports mechanical and electronic products.
As of the end of March 2023, China’s direct investment in the five Central Asian countries stood at slightly over US$ 15 billion. The cumulative turnover of completed projects reached US$ 63.9 billion.
The share of Central Asia in Russia’s foreign trade is just about 5%. However, Uzbekistan and Kazakhstan will become net importers of gas from Russia in the future. Gas accounts for about 90% of electricity generation and 7% of exports in Uzbekistan. Russia is expected to increase its trade with Central Asia as it is discriminated against in many other places because of the Ukraine war.
According to Observer Research Foundation’s Saaransh Mishra, trade between India and Central Asia is at a measly US$ 2 billion. Bad connectivity is the main issue. The International North-South Transport Corridor (INSTC), the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, have not shown progress due to geopolitical, financial, and security constraints.
But India has stepped up its aid to Central Asia. A US$1 billion line of credit was extended in 2020 for development projects in various spheres. “However, there is certainly a long way to go before India could be designated as one of the most consequential actors in Central Asia,” Mishra writes.
In August 2019, Pakistan stopped trade with India over constitutional changes in Kashmir and transit through the border was stopped. Thus, all hopes in India of any land links with Central Asia were dashed. India is forced to reach Central Asia through Chabahar port in Iran.
There is no gainsaying that the current members of the SCO, have serious security issues arising from radicalization, cross-border terrorism or big power hegemony. The SCO is addressing these issues in some ways. But the SCO cannot address security issues effectively if it has no economic legs to stand on.
And economic legs will not appear if the members give primacy to their narrow geopolitical or competitive interests, and if they do not see the need to find common ground through give and take.
The 23 rd. Summit of the SCO held in the virtual mode on July 4, with India as Chair, saw the play of narrow interests and rivalries. With the result, the “New Delhi Declaration” lacked unanimous approval. India refused to endorse that part of the declaration which dealt with an economic development plan proposed by China. India objected to the inclusion of China’s Belt and Road Initiative (BRI) particularly. India has always been opposed to the BRI on the grounds that a part of it (the China-Pakistan Economic Corridor) violates India’s sovereignty over territory in Kashmir seized by Pakistan in 1948. India has also berated the BRI for inveigling developing countries into a debt trap.
According to Pravin Sawhney of Force magazine, India had anticipated trouble at the summit. That was why an in-person summit was converted into a virtual one with no explanation offered. “India did not want to face Xi Jinping who would have certainly attended an in-person meeting,” Sawhney said.
But China cannot be avoided if the SCO is to function. The fact is that most of the funds for SCO’s economic ventures will have to come from China because it is the only member with deep pockets. India is the fifth largest economy in the world, but China’s economy is five times India’s. The other major SCO member, Russia, is a pale shadow of its former self and is also debilitated by war. It can hardly be expected to contribute much.
Sawhney says that India was isolated in the summit because of the economic issue. Not only did all other members endorse the economic clauses in the Declaration inserted by China but all of them already have BRI projects in their countries.
Therefore, on economic issues India may have to plough a lonely furrow in the SCO. Alternatively, India will have to find a modus vivendi to accommodate the reality of China’s dominant economic presence, including the BRI.
India appears to have lost sight of the fact that it cannot be an effective participant in the economic resurgence of Central Asia, without a land route to it. In this regard, so long as it makes an issue of the China-Pakistan Economic Corridor (CPEC) passing through Pakistan Occupied Kashmir, it cannot have a land route to Central Asia. The sole link will be via Chabhahar port in Iran. But an Iran led by Islamic clerics could turn against India any time given the rising Islamphobia in India.
Bitterness in India-Pakistan and Sino-Indian relations was evident in the speeches at the summit. In his address, Prime Minister Narendra Modi indirectly hit out at Pakistan and China. “Some countries use cross-border terrorism as an instrument of their policies, provide shelter to terrorists (alluding to Pakistan). The SCO should not hesitate to criticize such nations. There should be no place for double standards on such serious matters (alluding to China),” Modi said.
Pakistan’s Premier Shehbaz Sharif complained that that terrorism was being “used as a cudgel for diplomatic point scoring”. Going further he said: “Instead of cherry picking for narrow political gains, terrorism in all its forms and manifestations, including State terrorism, must be condemned in clear and unambiguous terms. Similarly, religious minorities should never be demonized in the pursuit of domestic political agendas.”
Key members of the SCO are at odds with each other, weakening the organization in the process. As Sino-Indian relations are stuck on both the political and economic fronts, and India-Pakistan relations continue to be mired in suspicions, the SCO may not have any practical relevance, like SAARC. And its members, like those of SAARC, will opt for bilateral arrangements.