For years, Western pundits have treated China’s economic presence in Central Asia as a source of friction, particularly its loans and investments, which were portrayed as “debt traps”. But this cliché is as tiresome as it is analytically lazy.

Anyone who looks at the matter will find that what defines China’s engagement with Central Asia today is not reckless lending but a structural shift toward foreign direct investment ( FDI ), industrial localization and far more disciplined sovereign borrowing. With wars raging to the region’s immediate south, in Iran and in Afghanistan ( where Pakistan is conducting a bombing campaign ), China’s mounting investments are a clear sign that Central Asia has achieved a political and economic stability that few anticipated.

First, consider the scale of Chinese investment. By mid-2025, its accumulated FDI stock in Central Asia had reached US$35.9 billion, nearly double the total a decade earlier. At a time when global FDI flows have fallen – by 11% in 2024, according to UN Trade and Development – Chinese investment in the region continues to expand.

More importantly, the structure of the investment has changed. A decade ago, roughly 68% of Chinese FDI in Central Asia was concentrated in raw materials. Today, that share has declined to 54%, even as the absolute value of commodity investment has increased. Manufacturing now accounts for 22% of total Chinese FDI in the region – around US$14.5 billion – while energy, including renewables, represents 12%. Far from a case of extractive diplomacy, this is forward-looking industrialization.

Kazakhstan remains the largest single recipient of Chinese FDI, which has reached US$11.4 billion. But the real story is Uzbekistan, where Chinese FDI has surged from a negligible US$300 million in 2016 to US$10.7 billion by mid-2025 – a 35-fold increase in less than a decade. If current trends continue, Uzbekistan is likely to overtake Kazakhstan as the region’s top destination for Chinese FDI before 2027.

The sectoral composition explains why. Chinese companies are not simply purchasing oil fields. They are building automotive plants, textile clusters, chemical facilities and electrical-equipment factories. Chinese firms, such as BYD, Chery and Geely have established manufacturing capacity in Uzbekistan and Kazakhstan, making them key nodes in the supply chain and creating local value-added production. China is exporting capital and industrial capacity, not just buying commodities.

Loans tell a complementary, and equally misunderstood, story. Central Asian governments and state-owned enterprises’ total liabilities to China, a figure that includes sovereign loans and quasi-sovereign obligations backed by state guarantees, amount to approximately US$18 billion to US$20 billion. This may be a significant sum, but it needs to be put in perspective. By comparison, China’s total FDI in the ex-Soviet Commonwealth of Independent States and Mongolia had reached US$66.1 billion by mid-2025 – an 80% increase since 2016. Investment, not debt, defines the region’s balance sheet with China.

Chinese lending has evolved through distinct phases. During the early days of China’s Belt and Road Initiative ( 2013-17 ), large sovereign-backed loans financed highways, power plants, and transmission lines. After 2018, lending slowed sharply amid pandemic disruptions and greater political scrutiny. Since 2023, large projects have returned, but under far more conservative financial structures.

Kyrgyzstan illustrates the transition. Its accumulated debt to China stands at roughly US$1.59 billion, or about 30% of its external debt. While earlier projects, such as the Bishkek Thermal Power Plant and major transmission lines, were backed by full sovereign guarantees, the new China-Kyrgyzstan-Uzbekistan railway, financed in late 2025, is structured around build-operate-transfer principles with shared operational risk. China will provide a US$2.3 billion 35-year loan covering roughly half of the project’s cost. As such, the arrangement explicitly limits governments’ fiscal exposure.

For its part, Tajikistan carries roughly US$750 million in sovereign debt to Chinese lenders, much of which financed highways and energy infrastructure. But here, too, repayment mechanisms increasingly include resource-linked arrangements designed to ease fiscal pressure.

Uzbekistan has kept Chinese sovereign exposure to around US$3.8 billion, roughly 11% of its total external debt, channelling borrowing into projects with identifiable industrial returns. Kazakhstan’s liabilities are concentrated in quasi-independent companies rather than the central budget. And Turkmenistan’s earlier “loans for gas” model has been largely amortized through energy exports.

This is not debt dependency. It is debt management. Central Asian governments have become more selective borrowers, and China has shifted from blanket sovereign lending toward blended finance, public-private partnerships ( PPPs ) and equity participation. Renewable energy projects in Kazakhstan and Uzbekistan are increasingly financed through FDI or PPPs, rather than with sovereign loans. As build-operate-transfer structures replace open-ended guarantees, projects must demonstrate cash-flow viability.

This dual dynamic – rising FDI and disciplined credit – will likely intensify for the rest of this decade. Central Asia already absorbs more than half of China’s FDI in the post-Soviet space. Industrial cooperation is expanding into critical minerals, including lithium, copper and uranium. Future projects in Kazakhstan and Tajikistan are expected to include not only extraction but also primary processing, thereby anchoring semi-finished production locally.

At the same time, the region’s infrastructure financing needs remain vast. If China covers even 30-40% of them – under build-operate-transfer frameworks, PPPs and equity arrangements, rather than through blanket sovereign guarantees – it will do so on far more disciplined terms than a decade ago.

The caricature of Chinese “debt-trap diplomacy” ignores two realities. First, China’s economic presence in Central Asia is dominated by equity investment and industrial capacity transfer, not sovereign debt. Second, Central Asian governments are no longer passive borrowers; they are negotiating financing structures designed to preserve fiscal sustainability.

What is emerging across Central Asia is not dependency but interdependence: disciplined borrowers are working with adaptive lenders, and the model is shifting from extraction to production. In a world of declining global investment flows and fractured supply chains, the evolving Chinese-Central Asian relationship may prove to be one of Eurasia’s most pragmatic and durable development models. It may also buttress regional stability at a time when war in Iran is undermining it.

Djoomart Otorbaev is a former prime minister of Kyrgyzstan.

Copyright: Project Syndicate