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China views Afghanistan’s $ 1 trillion minerals with a risky bet on the Taliban

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With the American withdrawal, Beijing believes it can offer what Kabul needs most: political impartiality and economic investment.
Image Credit: AP

Washington: When the United States invaded Afghanistan in 2001, the global economy was very different: Tesla Inc. was not a company, the iPhone did not exist, and artificial intelligence was better known as movie name of Steven Spielberg.

Now all three are at the forefront of a modern economy driven by advances in high-tech chips and high-capacity batteries made with a range of minerals, including rare earths. And Afghanistan sits on deposits estimated at $ 1 trillion or more, including what could be the world’s largest reserves of lithium – if someone can pull them out of the ground.

Four decades of war – first with the Soviet Union, then between warring tribes, then with the United States – prevented this from happening. That is not expected to change anytime soon, with the Taliban already showing signs that they want to re-impose a theocracy that rolls back women’s rights and other fundamental freedoms rather than lead Afghanistan to a prosperous future.

China’s optimism

But there is also an optimistic perspective, now pushed by Beijing, which goes like this: the Taliban form an “inclusive” government with warlords from competing ethnic groups, allow a minimum level of basic human rights for women and men. minorities, and fight terrorist elements. who want to hit the United States, China, India or any other country.

“With the withdrawal of the United States, Beijing can offer what Kabul needs most: political impartiality and economic investment,” wrote Zhou Bo, who was senior colonel of the People’s Liberation Army from 2003. to 2020, in a New York Times editorial. during the weekend. “Afghanistan, in turn, has what China values ​​most: opportunities in building infrastructure and industries – areas in which China’s capabilities are arguably unmatched – and access to 1,000 billion dollars of untapped mineral deposits.

For this scenario to have even a remote possibility, it depends a lot on what will happen in the coming weeks. Although the United States is rushing to evacuate thousands of vulnerable Americans and Afghans after a precipitous troop withdrawal ending 20 years of war, President Joe Biden still has the power to isolate any new government led by Taliban on the world stage and preventing most companies from doing business. in the countryside.

In a statement released Tuesday, the Group of Seven said the legitimacy of any Afghan government depends on its adherence to international obligations, including ensuring the human rights of women and minorities. “We will judge the Afghan parties by their actions, not their words,” the group said after a virtual leaders’ meeting.

Sanctions and reductions in aid

The United States maintains sanctions against the Taliban as a whole and can veto any move by China and Russia to ease the United Nations Security Council’s restrictions on the militant group. Washington has already frozen nearly $ 9.5 billion in Afghanistan’s reserves and the International Monetary Fund halted funding to Afghanistan, including nearly $ 500 million that was to be disbursed when the Taliban took over. control.

To have any hope of accessing these funds, it will be crucial for the Taliban to facilitate a smooth evacuation of foreigners and vulnerable Afghans, negotiate with warlords to prevent another civil war and end a series. human rights abuses. Already, tensions are mounting over the August 31 deadline for troop withdrawal, with the Taliban warning the United States not to cross what it has called a “red line.”

Yet the Taliban have several reasons for showing restraint. Kabul faces a growing economic crisis, with soaring prices for basic commodities like flour and oil, drugstores running out of medicine and ATMs. The activist group this week appointed a new central bank chief to address these issues, just as his exiled predecessor warned of shocks that could lead to a weaker currency, faster inflation and capital controls.

Nothing stands forever

The Taliban are also calling for the sanctions to be lifted, with spokesman Suhail Shahee telling Chinese public broadcaster CGTN this week that the financial sanctions would hurt efforts to rebuild the economy. “The push for more sanctions will be a biased decision,” he said. “It will be against the will of the Afghan people. “

Leaders of the militant group said they wanted good international relations, especially with China. Officials and state media in Beijing have softened the ground for closer ties, the Communist Party-backed Global Times reporting that Chinese investments are likely to be “widely accepted” in Afghanistan. Another report argued that “the United States is not in a position to meddle in any potential cooperation between China and Afghanistan, including on rare earths.”

“Some people point out their mistrust of the Afghan Taliban – we mean that nothing stands forever,” said Hua Chunying, spokesperson for China’s Foreign Ministry last week. “We have to see the past and the present. We must listen to the words and observe the actions.

For China, Afghanistan has economic and strategic value. Beijing leaders have repeatedly called on the Taliban to prevent terrorists from planning attacks on China and consider strong economic ties essential to ensure stability. They also see an opportunity to invest in the country’s mining sector, which can then be transported to China-funded infrastructure that includes around $ 60 billion in projects in neighboring Pakistan.

Unexplored mineral deposits

US officials estimated in 2010 that Afghanistan had $ 1 trillion in unexplored mineral deposits, and the Afghan government said they were worth three times as much. They include vast reserves of lithium, rare earths and copper – materials essential to the global transition to green energy. But fragile infrastructure in the landlocked country, along with a lack of security, has hampered efforts to mine and profit from the reserves.

The Taliban takeover comes at a critical time for the battery materials supply chain: producers look to invest in more upstream assets to secure lithium supply before what Macquarie called a “shortfall perpetual”. The United States, Japan and Europe are seeking to reduce their dependence on China for rare earths, which are used in items such as permanent magnets, although the measures are expected to take years and require millions of dollars in government support.

A major problem for the Taliban is the lack of qualified policymakers, according to Nematullah Bizhan, a former economic adviser to the finance ministry.

“In the past, they appointed unqualified people to key specialist positions, such as the finance ministry and the central bank,” said Bizhan, now a senior lecturer in public policy at Australian National University. “If they do the same, it will have negative implications for the economy and growth in Afghanistan. “

Burnt China

Officially, the Afghan economy has grown rapidly in recent years as billions in aid have flooded the country. But that expansion has fluctuated with donor assistance, showing “how artificial and therefore unsustainable the growth has been,” according to a recent report by the US Inspector General for the Reconstruction of Afghanistan.

China has already been burned. In the mid-2000s, investors led by state-owned Metallurgical Corp. of China Ltd. won a bid of nearly $ 3 billion to mine copper in Mes Aynak, near Kabul. He still hasn’t seen an exit due to a series of delays ranging from security concerns to the discovery of historic artifacts, and there is still no rail or power station. The MCC said in its 2020 annual report that it was negotiating with the Afghan government over the mining contract after earlier saying it was not economically viable.

The Taliban are trying to show the world that they have changed from their oppressive regime of the 1990s, saying they welcome foreign investment from all countries and will not allow terrorists to use Afghanistan as a base. Janan Mosazai, a former Afghan ambassador to Pakistan and China who joined the private sector in 2018, sees “huge opportunities for the Afghan economy to take off” if the Taliban prove they are serious about “talking about words to deeds “.


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