China Stakes Out Silk Road Riches as Deal Maker Xi Charms Central Asia

09/30/2013 01:47 pm ET | Updated Nov 30, 2013

In the 13th century, Venetian adventurer Marco Polo put the Silk Road on the European map. His two-decade long odyssey from Europe to Asia--across the Caucuses and Gobi desert--fueled a western appetite for the treasures of the east--tea, silk, gunpowder, and porcelain. As centuries passed, camel caravans gave way to ships and the ancient land bridge was reduced to mere folklore, like its illustrious travelers Genghis Khan, Alexander the Great and Marco Polo.

In our time a new Silk Road is rising from the east. On September 13th Chinese president Xi Jinping completed a weeklong tour of Central Asia, underscoring China's determination to secure access to the region's vast treasures.

In each of the four former Soviet republics he visited, Xi lavished investments and trade deals on local leaders intent on diversifying their economies away from reliance on Russia.

In gas-rich Turkmenistan Xi signed an agreement that will double Turkmen gas exports to China along what is the world's longest gas pipeline. He inaugurated work on the world's second largest gas field, Galkynysh near the Afghan border, and committed $8 billion for a connecting pipeline to get it out. China is already the largest purchaser of Turkmen gas.

In Kazakhstan Xi solidified a strategic partnership in which China is becoming a force in Kazakhstan's oil industry. State-owned CNPC (China National Petroleum Company) secured an 8% stake in the consortium operating in the huge Kashagan oil field deep beneath the Caspian Sea. An existing Kazakhstan to China oil pipeline will be doubled in size and a new refinery built. In all, Xi and the Kazakh president signed deals totaling up to $30 billion.

In Uzbekistan Xi signed deals worth $15 billion in oil, gas and gold.

Finally, in Kyrgyzstan the Chinese leader concluded a $3 billion pipeline deal and then met with his partners from Central Asia and Russia in a summit of the Beijing-sponsored Shanghai Cooperation Organization.

China's foreign minister Wang Yi, who accompanied the president, says 38 agreements were signed during the tour. He says a strategic partnership has been established creating a Silk Road economic belt that will boost trade and cooperation through the region.

The Chinese vision for the new Silk Road extends well beyond pipelines. Already trains are rolling over the new Chinese built Eurasian rail link that Hewlett Packard is using to bring products made in China to markets in the European Union. Transit time to Western Europe via the 7,000-mile route is reduced to three weeks. Yi speaks of logistic hubs and fiber optic networks to support manufacturing relocating from coastal locations to undeveloped western China.

The Chinese move into an area traditionally dominated by Russia has thus far been endorsed by Moscow. Xi and Vladimir Putin have met four times this year and Putin extols Russian Chinese relations as the best they've ever been. Bilateral trade is rising and state-controlled Rosneft recently agreed to double Russian oil shipments to China.

Analysts say China, Russia and the Central Asian republics have found common ground on security matters. Throughout the region narco-trafficking is on the rise amid fears it will expand further as the US and NATO withdraw from Afghanistan. During his tour Xi repeatedly emphasized the three evils of terrorism, separatism, and extremism and the need for concerted efforts to combat them.

Julia Nanay, a Central Asia specialist at PFC Energy, plays down the prospect of China Russia rivalry in Central Asia. It will increase only gradually, she says, as the region's military, economic and cultural ties to Russia remain strong.

However, Anders Aslund of Washington's Peterson Institute for International Economics, says Russia is misplaying its hand in the region, competing "with protectionism instead of positive incentives." Turkmenistan, he says, essentially gave up on Russia in 2009 after Gazprom blew up its pipeline to Russia to cut unwanted shipments. Russia is exploiting Kazakhstan, says Aslund, by forcing it into a customs union that nearly doubles tariffs to the much higher Russian level.

In an analysis of Central Asia after 2014, Center for Strategic and International Studies scholar Jeffrey Mankoff says, "stabilizing Central Asia requires connecting it to the global economy, which in turn can only be done with Russia and Chinese support." Mankoff argued that China's role as "a funder and builder of infrastructure should be broadly welcomed."

Two years ago then Secretary of State Hillary Clinton unveiled her own Silk Road initiative, which called for integrating Afghanistan into the booming economies of the broader region. That integration remains problematic and as Xi's low-key tour suggests it is likely to occur only with China playing the leading role.

This post first appeared on marketwatch.com