China and the Istanbul Canal
On June 26, 2021, Turkish President Recep Tayyip Erdoğan officially inaugurated the Istanbul Canal project. This ambitious project, to construct a 45-kilometre canal between the Sea of Marmara and the Black Sea at an estimated cost of $15 billion, is Erdoğan’s latest mega-project. He has launched it at a time when the Turkish economy faces many challenges. Turkey’s tensions with the European Union and the United States and its record high levels of foreign debt have, so far, deterred most Turkish and foreign lenders from this project. Some potential investors have also expressed doubts about the financial viability of the project itself.
Yet despite all of these concerns and challenges, China has stepped forward as the only major foreign investor pledging to invest in the canal. Indeed, some observers, such as journalist Jale Ozgenturk, have even argued that President Erdoğan would not have announced the start of the project last month without Chinese support.
Ever since this announcement, the Turkish media has engaged in heated debate in support and opposition to the project. However, it has not paid sufficient attention to China’s motivation for pledging such substantial financial support for it.
This article will analyze China’s motivation for serving as the main foreign investor for the Istanbul Canal project by looking at the risks and benefits of such an undertaking in the context of China’s overall relations with Turkey and its broader global economic strategy, which is now well known all over the world as the Belt and Road Initiative.
In recent years China has emerged as one of the most important economic partners of Turkey. In addition to the steady increase in the volume of bilateral trade between the two countries, China has come forward as the leading investor in President Erdoğan’s mega-projects, such as the Third Bosphorus Bridge, the Marmaray Tunnel, and the Istanbul Airport. Even more critically, on several occasions in recent years, timely Chinese financial investments have prevented the Turkish Lira from experiencing a hard crash.
Investment in these projects, and now in the Istanbul Canal, represent the importance China places on Turkey as an economic partner. Aside from having an attractive and hospitable environment for foreign investment, the geographic location of Turkey is very significant for China’s Belt and Road connectivity to Europe. Hence, it comes as no surprise that the above-mentioned mega-projects enhance the rail and highway transport between Asia and Europe via Turkey, which represents the middle corridor for land connectivity between the two regions. China has also invested in the Kumport commercial sea terminal near Istanbul in the Sea of Marmara to incorporate Turkey in its network of commercial seaports as well.
However, in this broader Belt and Road framework, the Istanbul Canal is different from other Chinese investments in Turkey in several ways. First, its contribution to China’s trade and transportation is not as significant as the previous projects, which improve transportation bottlenecks across the Bosphorus Strait. Unlike the Third Bosphorus Bridge and the Marmaray Tunnel, the Istanbul Canal runs north-south and can, therefore, only help China in its economic relations with Russia and other littoral Black Sea states. China’s trade with this region is not that significant, and Russia’s oil and natural gas exports to China are already delivered by pipelines from Siberia. Furthermore, any improvement in China’s cargo shipment to the Black Sea region will be marginal because the Bosphorus strait is already available.
Another major difference is that the canal appears to be more controversial than President Erdoğan’s previous mega-projects in Turkey’s domestic politics. As Turkey approaches the 2023 presidential election, the canal project will be more politicized and take the front stage in presidential debates. As such, it might face more political risks, and its fate might be closely linked to the outcome of the election. In other words, there is a risk that the project will be terminated if President Erdoğan and his party do poorly in the upcoming presidential and parliamentary elections.
Furthermore, the growing controversy about the canal can increase Turkish public opinion’s negative sentiments toward China as the canal project’s main financier. China is already a target of severe criticism by some opposition politicians and ordinary citizens because of its treatment of Uyghur Muslims in Xinjiang province. A third difference between the Istanbul Canal and other Chinese investments in Turkey arises from Russia’s opposition. Russia, which is a major economic and strategic partner of China, is opposed to the construction of the canal for military and security reasons. It is concerned that the Istanbul Canal will give the United States and NATO easier access to the Black Sea. By investing in this project, China will risk experiencing some tension with Russia.
These negative factors are likely to outweigh the direct returns China will gain from investing in the canal project, which will consist of revenue-sharing arrangements with the Turkish government. However, the passage tariffs on commercial ships are not likely going to be substantial or generate sufficient revenues. That is because if the toll is set too high, many ships might continue using the Bosphorus Strait instead. As demonstrated in many other Belt and Road projects, however, the Chinese government takes many long-term and indirect benefits of such projects into account.
One of these indirect benefits for China is that the Chinese firms will be able to participate in more profitable real estate investment opportunities in the new urban and commercial zones around the canal. Not only the Chinese construction firms will benefit from participation in these large scale projects, but many Chinese citizens and businesses are expected to purchase property and do business in these newly created urban areas.
By playing a vital role in the Istanbul Canal project, China will also further strengthen its diplomatic and economic ties with the Turkish government. China is investing heavily in the East Mediterranean and Balkan regions. It now appears that with the encouragement of the Chinese government, many Chinese firms are selecting Turkey as the regional hub for their operations in the entire region. China’s participation in the Istanbul Canal will result in a more favourable and supportive opinion by the Turkish government toward these Chinese businesses.
Unlike the opposition parties, the Erdoğan government has recently adopted a less critical policy toward China with respect to the Uyghur ethnic group. This appeasing tone is mostly a result of the growing economic relations between Turkey and China and the appreciation of President Erdoğan’s government for Chinese investments. In a time when the United States and European countries are becoming more vocal in their support of human rights for the Uyghurs, Turkey’s more friendly posture is very important, and it partly justifies China’s commitment to the Istanbul Canal project.
Overall, it appears that China’ commitment to the Istanbul Canal project is partly intended to solidify its relations with President Erdoğan, who perceives the canal project as a critical factor in his 2023 presidential reelection bid. But this investment will also deepen China’s involvement in Turkey’s economy and integrate Turkey deeper into the Belt and Road Initiative in Eastern Mediterranean and Eurasia. At a time when the United States is working hard to reduce the economic dependence of European countries on China, Turkey appears to be so important to the Chinese government that Beijing seems ready to risk creating tensions with Russia to please President Erdoğan by supporting the construction of the Istanbul Canal.
Even more significant than upsetting Russia, China should also be mindful of the sentiments of the Turkish people about the Istanbul Canal. In light of the environmental concerns, these sentiments seem to be highly polarized. Some in Turkey view the canal and other Chinese investments as supporting the Turkish economy and reducing the adverse impact of Western sanctions. Others are concerned that these projects benefit President Erdoğan at the expense of Turkey’s national interest. They are worried that by receiving support from China, Erdoğan is pursuing a confrontational policy that jeopardizes diplomatic relations with the West. China’s support for the Istanbul Canal might increase the negative sentiments toward China, and the opposition political parties are sure to exploit these sentiments. If President Erdoğan and his party do poorly in the coming 2023 elections, the new political leaders might scale back these fast-growing bilateral relations.