China’s hopes to open new oil fields in Xinjiang have met with only modest success. Though the petroleum resources are estimated to be substantial, their remote and forbidding location in the bone-dry Taklamakan Desert render extraction commercially unattractive, especially given the low price of crude oil in recent years that has only shown a gradual upward trend lately. Nonetheless, Beijing has plans to build a 2,500-mile pipeline costing US$4.8 billion and capable of carrying 7,500 to 12,000 gallons of gas per day to link the Tarim Basin gas reserves of Xinjiang with the port of Shanghai on China’s east coast.

The central government is leaving the funding of the project up to state corporations, local governments, and foreign partners, which include bidders from US, Dutch, Hong Kong, and Russian oil and gas interests. However, like other joint-ventures for infrastructure development in Xinjiang, progress has been slow, as potential domestic and foreign investors are not confident that China’s legal system is transparent or effective enough to resolve potential disputes arising from the construction and operation of such a large trans-regional energy project.

By exploring the possibilities for energy cooperation with Central Asian states, China hopes to diversify its sources of crude oil imports beyond the volatile Middle East supply and reduce its reliance on the US goodwill that ensures the flow of China’s imported oil supplies from the Persian Gulf. In 1997, Beijing’s state-owned China National Petroleum Corporation (CNPC) acquired shares and development rights to Kazakhstan’s Atyubinsk oil field and successfully outbid US petroleum interests for the country’s largest oil field at Uzen. China had hoped that securing significant and long-term crude oil supplies through a pipeline from CNPC’s Kazakh oil fields to Xinjiang would render economically attractive the planned eastbound pipelines that would integrate Xinjiang with the industrial and political heartland of eastern China. Unfortunately for China, the project to construct the US$9.5 billion, 1,860-mile Kazakh-Xinjiang stretch of the pipeline system has since been put on hold, as the Kazakh government has been unwilling to guarantee the annual minimum volume of 20 million tons of crude oil that would make the pipeline profitable for Beijing. Instability in Central Asian countries and possible troubles in Xinjiang from Uighur separatists, who have already mounted attacks on oil installations and convoys, have also made potential investors reluctant to commit to building the infrastructure for transporting energy resources to China and to markets further east in Japan or Korea.

Indeed, a major purpose of the SCO is to guard against external disturbances to the domestic tranquility of Xinjiang, which would dampen the confidence of investors and flow of tourists to the region. However, Beijing also realizes that only by improving the material welfare of Uighurs will their attention be truly deflected from the persistent calls of Xinjiang separatists to engage in acts to detach the region from China. China’s strategy for promoting Xinjiang’s economic development calls for integrating Xinjiang into an emerging Central Asian market. As early as 1994, aware that Central Asia constituted a potentially important export market for products from Xinjiang and other parts of China, former PRC Premier Li Peng espoused the need to revive the ancient commercial “Silk Road” running through Central Asia from Europe to China through a proposed network of roads and railways in a project that will rival a similar proposal backed by Western countries to link Central Asia with Europe called the Transport Corridor Europe Caucasus Asia (TRACECA).

The SCO offers an effective method to achieve this same goal, opening doors for China’s general domestic economic strategy of “Great Western Development” by promoting trade and investment between Central Asia and western China, where Beijing has pumped more than US$55 billion into infrastructure building, ecological projects, and education programs, with US$12 billion to be spent on railway construction alone from 2001 to 2005. Such domestic economic development can stabilize Xinjiang and, as PRC leadership hopes, maintain the legitimacy of communist rule by maximizing China’s global stature, economic gains, and border security.

However, the economic benefits of such regional trading seem to have accrued more favorably to China than to the Central Asian countries considering the terms of trade between China’s exports (including textiles, consumer electronics, food, fertilizers, and machinery) and its imports (consisting mainly of mineral, agricultural, and animal products). Kazakhstan and Kyrgyzstan have so far failed to prevent the smuggling of consumer goods from Xinjiang, which has led to a thriving black market across Central Asia, and the Chinese authorities have offered little tangible help.

Although trade between China and the Central Asian countries has quadrupled over the last 10 years, it is still less than US$2 billion, which, when compared to China’s current annual trade levels of almost US$500 billion, leaves room for expansion. During the St. Petersburg summit, Kazakhstan’s President Nursultan Nazarbayev moved to hold consultations on a common tariff policy for all SCO states, and Kyrgyz President Askar Akayev called for the removal of trade barriers and discriminatory trade policies among the group’s members. To expand Xinjiang’s more than US$1.3 billion border trade with Central Asia, which constitutes some 60 percent of its total trade value, the Chinese government may wish to support these measures, standardize foreign investment codes and export quality among SCO countries, and actively interdict cross-border smuggling.

Eyeing US Interests

Facing a severe crackdown on terrorist activities by the Chinese government in the last two years, many separatists in Xinjiang who escaped arrest have adopted non-violent means to continue their struggle. Others, however, have fled to Afghanistan to join what is left of Al Qaeda, sought refuge in Muslim religious schools in Pakistan, or surfaced in Central Asia to train with the extremist anti-government groups. With a strong US ally in their midst, and Russia now a full partner of US-led NATO, Central Asian states may have less need than before to accommodate Chinese demands to crackdown on Uighur separatists.

Indeed, tensions between separatists operating from Central Asia and PRC military presence in Xinjiang are expected to rise. One of the most organized and radical separatist groups, the Home of East Turkestan Youth, also known as Xinjiang’s Hamas, reportedly now has 2,000 fighters operating along Xinjiang’s Tajik and Kazakh borders. Separatist groups may even come to expect assistance from Central Asian governments or the United States in orchestrating further anti-Chinese disturbances in Xinjiang. At the same time, since the US invasion of Afghanistan in October 2001, China has not withdrawn its military forces along the border with Afghanistan or those adjacent to Tajikistan and Pakistan-held Kashmir.