ANALYSIS - China seeks profit, shuns politics, in Afghanistan

KABUL Tue Oct 4, 2011 6:12pm IST

Chinese flags are seen at a pedestrian area of Nanjing road as part of the upcoming celebrations for National Day in Shanghai September 30, 2011. REUTERS/Carlos Barria

Chinese flags are seen at a pedestrian area of Nanjing road as part of the upcoming celebrations for National Day in Shanghai September 30, 2011.

Credit: Reuters/Carlos Barria

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KABUL (Reuters) - The Chinese passengers boarding the weekly Ariana Flight 332 from the remote western city of Urumqi to Kabul speak volumes about ties between a rising China, the world's number two economy, and its desperately poor and unstable neighbour, Afghanistan.

Of at least nine Chinese, six were heading for a China-funded copper mine, two were working for a Chinese telecom equipment maker and one was the boss of a Chinese restaurant, struggling to check in several boxes of illicit supplies, from alcohol to frozen pork.

"The situation is not as bad as news reports suggest, and I am hoping to make money," said Li Xiaofeng, the restaurant owner, who is from the eastern Chinese province of Zhejiang and opened his restaurant in Kabul last year.

He is contributing to a tiny but growing trade flow between China and Afghanistan, which many in Kabul hope could be the country's financial salvation as Western troops head home.

Bilateral trade between China and Afghanistan is currently just a fraction of trade with other "stans" -- the turnover of $114.9 million in the year through July was 2 percent of Sino-Pakistan trade.

But the rich mineral reserves lying untapped in Afghanistan after decades of war are a tempting and potentially lucrative lure for resource-hungry China, whose companies have already shown an ability to operate profitably in hostile environments.

A Chinese consortium in 2008 won Afghanistan's first major mining contract, a deal to develop the Aynak copper deposits.

The state-owned parent company of Metallurgical Corp of China Ltd (MCC) and China's largest copper producer, Jiangxi Copper, are developing the mine, estimated to hold up to nine million tonnes.

The project is the biggest component of plans to wean Afghanistan off foreign aid that currently makes up most of the government budget. But progress has been slower than expected.

"Officials in Kabul always said yes, but on the site, there are always a lot of problems to handle," one MCC official, who asked for anonymity, told Reuters.

MCC said in a statement that construction workers were currently idle as archaeological preservation works on a Buddhist monastery were under way.

NO POLITICAL, MILITARY COMMITMENT

The slow development may actually suit some officials back in Beijing, who are anxious to avoid a military or security role in the central Asian country.

China wants to stay out of the diplomatic spotlight in Afghanistan, said He Ming, deputy dean at East China Normal University's international studies college, who recently held an academic conference on Afghanistan.

"It's quite dangerous for China to play an active role in Afghanistan," he said, referring to the expense and controversy that followed most foreign intervention in Afghanistan in recent decades -- whether Soviet or Western-led.

"It's okay for Chinese companies to start up projects there, but if you are talking about political influence ... I don't think China has the necessary conditions and abilities."

Beijing's ambiguous attitude to Kabul shows in official hesitance to open the border with Afghanistan. The frontier lies on a remote 76-km (47-mile) stretch of land at the end of the narrow valleys of the Wakhan Corridor.

But a dirt road leading up near China's side of a high pass -- reputedly used by Marco Polo -- is not matched on the Afghan side, where farmers and herders still live much as they did centuries ago.

China fears the spread of Islamic militancy from Afghanistan into its restive Western Xinjiang region, home to millions of Uighur Muslims, and instability in Afghanistan.

So it has an interest in Afghanistan's future, but has also watched the Soviet Union and the United States flounder there. As a result, Beijing plans to steer well clear of serious political or military engagement.

"China hopes there will be peace in Afghanistan, but as for what conditions there should be for peace, China has no seat on the negotiating table," said Ye Hailin, a researcher with the Chinese Academy of Social Sciences in Beijing.

He added that Pakistan, rather than Afghanistan, was always Beijing's top choice for exerting influence in the region.

"In China, the phrase 'Af-Pak' does not exist," he said, referring to a term often used by Western diplomats and policy-makers, who consider the neighbours and their problems so closely linked they should be tackled together.

"Pakistan is a big Muslim sovereign nation; Afghanistan is a war-torn country eagerly awaiting reconstruction."

RESOURCE HUNT MUST GO ON

But the wait-and-see stance of Beijing when it comes to politics and security has not deterred Chinese firms' hunt for precious resources and profit.

In September, the China National Petroleum Corp (CNPC), China's state-owned oil giant, was chosen as a preferred bidder for an oil field in northern Afghanistan.

"China has no choice, it has to go out to find resources to ensure energy security," said Lin Boqiang, director of think-tank the Center for Chinese Energy Economics Research.

"For China's state oil giants, they know clearly that they must take the risks, including risks in Afghanistan."

Chinese firms already have a stake in nearly 40 projects in Afghanistan, with contracts worth nearly $500 million at the end of June, according to Wu Gangchen, the commercial counselor at the Chinese Embassy.

"Reconstruction means markets, reconstruction means opportunity," Wu was quoted as saying in a recent interview with Beijing-based newspaper the International Business Daily.

He urged Chinese investors to keep their eyes open for possible deals in Afghanistan, particularly in the sectors of "energy, infrastructure, trade, service and processing."

CNPC appears to agree, and if it can finalise its intended oil deal with Kabul as expected in mid-October, it would be a good news for national airline Ariana as well. On the sunny Thursday flight, only about a third of the seats were taken.

(Editing by Emma Graham-Harrison)

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