China In Eurasia

Faced with a struggling economy and few financial lifelines, Kyrgyzstan is feeling the weight of its swelling state debt -- a significant proportion of which is owed to China -- and considering some drastic measures to meet its obligations.

Kyrgyzstan’s foreign debt is reportedly as much as $5 billion and more than 40 percent of that ($1.8 billion) is owed to the Export-Import Bank of China for a series of infrastructure projects over the last decade under the guise of the Belt and Road Initiative (BRI), Chinese leader Xi Jinping's signature foreign-policy project.

Bishkek, however, is grappling with a contracting economy whose gross domestic product dropped 8.6 percent in 2020, prompting fears the country will be unable to pay off its loans or even meet interest payments, especially on the Central Asian country’s commitments owed to Beijing.

With deadlines approaching, there has been discussion by Kyrgyz officials of potentially forfeiting assets as a form of repayment.

"If we do not pay some of [the debt] on time we will lose many of our properties," new Kyrgyz President Sadyr Japarov told the state Kabar news agency during an interview on February 13. "Agreements with such conditions were signed by [President Almazbek] Atambaev. But, God willing, we will get rid of all debts in time. There are plans."

What exactly those plans are remains to be seen.

While Japarov's comments refrained from mentioning China directly, the national conversation has since shifted to how the country of 6.4 million people can repay its loans to Beijing, its largest creditor and a major political force in Central Asia.

This debt impasse highlights the difficult bind that many countries -- including Kazakhstan, Tajikistan, and Pakistan -- have with Chinese-owed debts from large BRI infrastructure projects as they deal with the economic crunch caused by the COVID-19 pandemic.

Beijing has so far shown a willingness to defer some loans, but not offer outright relief, pointing toward a difficult negotiating environment for countries like Kyrgyzstan that are under such difficult financial strain.

"China has shown many times in Latin America and Africa that it is not a charity and that it is a very pragmatic partner in terms of getting back its debts," Temur Umarov, an expert on China-Central Asia relations at the Carnegie Moscow Center, told RFE/RL. "For Kyrgyzstan, it's a challenging situation with no clear way out."

Kyrgyzstan has been considering options for the development of its Jetim-Too iron-ore mine in recent months, and some government critics have raised the prospect that the authorities might sell off or surrender mining rights to the lucrative deposit to pay off its loans to Beijing.

As a presidential candidate, Japarov himself floated the idea of using Jetim-Too to pay down state debt owed to China, although Kyrgyzstan's National Bank has said the government planned to retain ownership.

Beyond mineral and mining concessions, some lawmakers have also mentioned the possibility of the government surrendering partial management of the country’s energy sector.

This outcome to resolve the country's debts was raised by parliament deputy Akyl Japarov (no relation to the president) on February 22, if Kyrgyzstan could not meet its interest payments on the controversial, Chinese-financed reconstruction of Bishkek's main power plant, the cost of which was grossly inflated before breaking down and continues to have shortfalls in production.

"Kyrgyzstan has no leverage and few ways to manage this crisis," Niva Yau, a researcher at the OSCE Academy in Bishkek, told RFE/RL. "A lot will depend if Japarov is able to follow through on his reforms for the economy and bring in anti-corruption measures."

In Search Of Goodwill

Japarov and Xi had their first phone call on February 22, during which the Kyrgyz president voiced support for more Chinese projects in the country and praised Xi's handling of a range of international issues.

The phone call comes after strained relations between Bishkek and Beijing around the events that brought Japarov to power and plunged Kyrgyzstan into a political crisis in October.

The nationalist Japarov rode into power on protests triggered over parliamentary elections that toppled the government and saw the resignation of President Sooronbai Jeenbekov.

But in the wake of those events, Chinese businesses and citizens in Kyrgyzstan reportedly faced attacks and shakedowns, which led to Kyrgyz Ambassador to China Kanayym Baktygulova being summoned in Beijing as Chinese officials expressed their displeasure and concern for the safety of its citizens.

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"Beijing has lots of concerns over a populist leader like Japarov," Yau said. "China has been waiting for the domestic political situation to stabilize and there is still lots of hesitancy."

Anti-China protests have grown across Central Asia in recent years, with many such demonstrations taking place in Kyrgyzstan and Kazakhstan.

Concerns about land ownership, state debt, Chinese labor practices, and the internment camps in the neighboring Chinese province of Xinjiang -- which have also held ethnic Kyrgyz and Kazakhs in addition to Uyghurs -- have been rallying calls in the country. Vandalism and several attacks on Chinese workers have also occurred in recent years in Kyrgyzstan and Kazakhstan.

Japarov -- whose parents lived for many years in China -- must now persuade Beijing that he can be a reliable partner without alienating himself from the nationalist, anti-corruption rhetoric that helped bring him to power.

On both fronts, the Kyrgyz leader faces tremendous obstacles.

Popular anger over corruption remains high in Kyrgyzstan and many details over past loan contracts signed with Chinese entities are unknown, sparking further speculation among the public about how the government will settle its debt with Beijing.

Moreover, Japarov is also dealing with the fallout of revelations around Raimbek Matraimov, the former deputy customs chief and influential power broker who was arrested for a second time on February 18 over suspicion of money-laundering following public backlash over a lenient fine. The allegations against Matraimov were first revealed by a joint RFE/RL investigation.

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With limited international experience, Japarov is also looking to shore up Russian support to help navigate his problems, with a visit to Moscow for talks with President Vladimir Putin and other top officials taking place on February 24-25.

Playing The Long Game

Even before the political upheaval that brought Japarov into office, Bishkek had been asking China for debt forgiveness.

Prior to the pandemic, Kyrgyzstan was making progress in paying down its outstanding loans, but the financial problems caused by COVID-19 broke down the country's economy, which remains reliant on cross-border shuttle trade with China, and derailed Bishkek's schedule.

In November 2020, some relief did come from Beijing in the form of debt deferment, allowing $35 million owed for that year to be delayed until 2022-24, at 2 percent interest.

Kyrgyzstan also secured help from international creditors through a Paris Club agreement in June, suspending $11 million worth of debt until the end of the year. Bishkek collectively owes more than $300 million to Denmark, France, Germany, Japan, and South Korea.

But those deals only offer temporary relief and do not address wider structural issues over Kyrgyzstan's inability to service its debt obligations. With Bishkek exploring various drastic options to repay its Chinese loans, what sort of concessions Beijing is willing to offer could be the deciding factor.

"The pattern is that China is willing to defer debt, but only in a handful of cases has it actually written it down," Jonathan Hillman, the director of the Reconnecting Asia Project at the Center for Strategic and International Studies, told RFE/RL. "Examples of asset seizures have been extremely rare."

China holds many of the cards in debt talks, with contracts signed with Kyrgyzstan stipulating that any disputes over repayment are to be settled in Chinese arbitration courts, rather than international ones, and could contain other clauses to Beijing's advantage.

"A lot of the issues facing Kyrgyzstan stem from a lack of due diligence and mismanagement from Kyrgyz officials over the years," Hillman said. "But I think this is a lesson on the risks of doing business with China. This is what happens when you have a lack of transparency around lending."

Still, China remains concerned about its reputation in Kyrgyzstan, and the wider region as a whole, and will likely be mindful of the optics and sensitivities in taking control of any assets in the Central Asian country.

"Taking an asset is not a good political move," Hillman said. "It will confirm everyone's worst fears about China and Belt and Road."

As countries in Europe struggle with shortages of COVID-19 vaccines, China has stepped up its efforts in the Western Balkans, supplying injections and collecting diplomatic wins in the region.

Serbia has emerged as the tip of the spear for China's "vaccine diplomacy" in Europe, where Beijing is aiming to build global influence by sending its injections to poorer countries -- filling a vacuum left by Western countries who have bought all of the available doses and are facing production delays for their homegrown vaccines.

While Serbia is a Russian ally and has aspirations to join the European Union, the country's ties with China have expanded in recent years and deepened further under President Aleksandar Vucic.

During the pandemic, he has not held back in trumpeting his country's strong ties with Beijing -- holding several high-profile press events to praise China's assistance and famously kissing the Chinese flag in March after medical aid from China arrived in Belgrade.

Vucic's strategy appears to have worked, as Belgrade has leveraged its relations amid the pandemic to diversify its vaccine sources and inject a greater percentage of its population than any other country in continental Europe. As of February 16, Serbia had given at least the first vaccination to about 11.2 percent of its nearly 7 million people, outpacing the EU, which is led by Denmark, with 6.9 percent of its population having received its first shot.

The bulk of those doses -- some 1.5 million -- have come from China's state-backed Sinopharm, though Serbia is also using Russia's Sputnik V vaccine and the U.S.-German Pfizer-BioNTech injection.

The latest Sinopharm vaccine shipment arrived on February 11 at Belgrade's Nikola Tesla Airport and was welcomed by Serbian Prime Minister Ana Brnabic and Chinese Ambassador to Serbia Chen Bo.

For China, providing vaccines to Serbia serves as an important geopolitical win as it faces stronger headwinds from an increasingly skeptical and disapproving West. Belgrade also becomes an important launching pad for China to gain a foothold in Europe as Beijing seeks greater influence in the region and beyond.

"Serbia has long been a testing ground for China," Vuk Vuksanovic, a researcher at the Belgrade Center for Security Policy and a former Serbian diplomat, told RFE/RL. "We've seen it with defense, construction, technology, and now with vaccines. It's where Beijing has tried policies that it hopes to test elsewhere in Europe."

From Masks To Vaccines

For China, the supply of vaccines follows a similar logic to Beijing's so-called "mask diplomacy."

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That strategy saw it provide much needed masks and medical equipment to countries along China's Belt and Road Initiative -- from Africa to Southeast Asia and the Middle East -- in the beginning of the coronavirus pandemic to deflect anger and criticism over Beijing's handling of the outbreak and to enhance its soft power.

In Serbia, the Chinese vaccines have helped the country become an inoculation leader. Good access to injections has also provided Vucic with a useful foil to criticize the EU and the inequalities in global access to vaccines.

In late January, Vucic compared the global scramble for vaccines with the Titanic disaster.

"The world has hit an iceberg, like the Titanic: The rich and the richest only save themselves and their loved ones," Vucic said. "[The EU countries] have prepared expensive lifeboats for them, and those of us who aren't rich, who are small, like the countries of the Western Balkans -- we're drowning together in the Titanic."

"For China, it's a golden opportunity to embarrass the EU and the West more broadly," Dimitar Bechev, a fellow at the Institute for Human Science in Vienna, told RFE/RL. "This is a chance for Beijing to burnish its global reputation and further its campaign to replace the West as the backbone of international cooperation."

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The EU pledged to give the six prospective EU members in the Western Balkans -- including Serbia -- $85 million to buy vaccines, but deliveries have been delayed.

The powerful bloc, which buys vaccines on behalf of its 27 member states, has not yet approved the Russian and Chinese injections, even though the manufacturers of the three vaccines being produced in Germany, the United States, and the United Kingdom are struggling to deliver their promised doses to countries.

Instead of waiting for EU help, Belgrade moved to get doses from China, Russia, and the United States directly -- a strategy that other countries may be looking to follow.

Beijing was quick to offer support to Serbia after it declared a state of emergency in March after finding itself cut off from access to medical equipment due to EU export restrictions. In what was the first rendition of his recent criticism of the vaccines, Vucic called European solidarity "a fairy tale" and emphasized that only China was willing to offer Serbia a helping hand.

As with the early days of the pandemic when countries were dealing with a shortage of medical equipment, smaller countries on the EU's periphery are looking elsewhere for help in acquiring vaccines.

North Macedonia is currently seeking to buy 200,000 Sinopharm doses in the hope of inoculating its population quickly.

Bosnia-Herzegovina has received 2,000 doses of Russia's Sputnik V, with plans for 200,000 more to arrive in the next month. Montenegro is also expecting 100,000 doses of the Russian vaccines -- a significant number for its tiny 625,000 population.

"Those countries outside the EU are left in the cold and have no other choice," Bechev said.

At least one EU country, Hungary, is following Serbia's example by procuring Chinese and Russian vaccines. Budapest unilaterally approved the Sinopharm injection for emergency use on January 29 and has ordered 5 million doses, the first of which arrived on February 16.

Others may also take the same approach.

Czech Prime Minister Andrej Babis has expressed an openness to follow the embrace by Hungary and Serbia of Chinese, Russian, and Western vaccines -- visiting Budapest and Belgrade on February 5 and February 10, respectively, to meet with leaders and discuss their strategies.

Pandemic Politics

Serbia's growing success in its vaccine strategy is a product of a foreign policy that has looked east and west, which was on full display in the vaccine preferences made by members of the Serbian government.

Prime Minister Brnabic received the Pfizer-BioNTech vaccine, while Interior Minister Aleksandar Vulin and parliament speaker Ivica Dacic took Sputnik V. Not to leave anyone out, Health Minister Zlatibor Loncar posed for his shot of China's Sinopharm. Vucic has also indicated that he would likely roll up his sleeve for the Chinese injection.

But despite the clear overtones, the Serbian government has insisted its vaccine strategy is not driven by world politics but rather is focused on rolling back a public health emergency.

"For us, vaccination is not a geopolitical matter. It is a health-care issue," Brnabic told the BBC in a February 10 interview.

According to Vuksanovic from the Belgrade Center for Security Policy, Serbia's embrace of China's vaccine diplomacy should be seen in the context of the country's wider foreign policy balancing act.

"It is also a way to provoke and leverage the EU to do more," he said. "The China factor is an important way to extract as much as you can from Beijing, but also to potentially motivate the Europeans to do more."

Following Vucic's criticism of European solidarity and praise for China in March for its "mask diplomacy," the EU eventually stepped up and delivered medical equipment to Serbia as part of a $112 million aid package.

But Beijing's strategy appears to be making gains: Surveys show that China is viewed overwhelmingly positively in the country, showing that its diplomatic efforts during the pandemic have been fruitful.

The larger question for China is whether it can build upon its foothold in Serbia and make gains elsewhere in Europe.

Beijing hosted a virtual summit for a bloc of Central and Eastern European countries on February 9 amid growing pushback toward China and its entities in the region.

Despite being chaired by Chinese leader Xi Jinping, the meeting received the lowest level of representation since it was founded in 2012 -- with six European states not sending either a prime minister or a president.

Despite that mild show of disinterest in a major Beijing event, many countries in the region are looking to keep their ties with Beijing intact amid the uncertainty and gridlock in the EU over the vaccines.

"Even those countries in Eastern Europe who are becoming disillusioned with China still might keep their China card around to play depending on how things shake out," Vuksanovic said.