Investing in Afghan stability: Will China’s pragmatic approach work?

Following the US withdrawal in August 2021, Afghanistan experienced a power vacuum. In response, it shifted its foreign policy towards economic development to encourage cooperation and reduce political tensions.

Since then, China, a neighbouring economic power, has sought to support Afghanistan’s reconstruction, enhance the latter’s regional connections and reduce its dependency on foreign aid. Through investments, China also aims to become the primary economic influence in Afghanistan, effectively replacing the US.

Afghanistan is abundant in natural resources, with its mineral wealth worth up to US$3 trillion. Natural resources are crucial to Afghanistan’s wealth, as they help to increase government revenue, alleviate poverty and reduce foreign reliance.

However, Afghanistan’s underdeveloped infrastructure has hindered it from fully exploiting these resources. Against this backdrop, China’s tariff-free agreement, scheduled for implementation in December 2024, is anticipated to enhance Afghanistan’s export production to China, raise national revenue and lessen dependence on foreign aid.

China and Afghanistan have maintained trade and cultural ties since the 2nd century BC. In the 4th and 5th centuries AD, several Chinese journeyed to Afghanistan and India to study Buddhism. Historically, Afghanistan has been part of China’s periphery diplomacy. Although trade links between the two countries began in the early 16th century, there was little drive to strengthen their bilateral relations until 1944, when Afghanistan signed a friendship agreement with the then-nationalist government in China.

Relations further developed under the People’s Republic of China. Afghanistan formally recognised China on 12 January 1950, but did not initially receive reciprocal recognition. Ultimately, China’s official recognition came in 1955, spurred by concerns over US economic and military support for Afghanistan.

China began exporting tea to Afghanistan in 1956. In January 1957, Chinese Premier Zhou Enlai visited Kabul, leading to the first Sino-Afghan trade agreement signed in February of that year, with Tien Tsin starting bicycle production for Afghanistan. Afghanistan’s exports included lapis lazuli and dried fruits. At that time, the Soviet Union had a strong political, economic and security presence in Afghanistan, which China viewed as unacceptable, and aimed to reduce Soviet influence in the country.

In the 1960s, Afghanistan maintained closer relations with Moscow than with Beijing and became the Soviet Union’s second-largest non-communist trade partner in Asia after India. Chinese aid to Afghanistan was minimal, and trade was limited, though political relations remained strong.

During then Chinese Vice-Premier and Foreign Minister Chen Yi’s visit to Kabul in 1960, the two countries signed the Treaty of Friendship and Non-Aggression, reaffirming their commitment to peaceful relations. In the 1990s, Afghanistan’s security situation became a major concern for China due to the Afghan civil war and the rise of the Islamic Emirate.

In 2001, China collaborated with the US during its invasion of Afghanistan but later began engaging with the Taliban as the US faced challenges in establishing stability. These connections grew stronger as foreign troops began withdrawing in 2014 and ISIS emerged in Afghanistan.

After the Islamic Emirate regained control in August 2021, China was one of the few countries to keep its embassy in Kabul and maintain ties. China’s Foreign Minister Wang Yi visited Kabul on 24 March 2022, during which both sides discussed political matters, transit issues, mining and increasing Afghan exports. 

China recognises the devastation of Afghanistan’s infrastructure and believes that regional countries should support Afghanistan’s efforts to achieve stability and self-reliance. However, China’s growing involvement in Afghanistan has raised various concerns. The EU, for instance, worries that China’s increasing role — particularly in the mining sector — could pose challenges to Europe’s future access to Afghanistan’s natural resources.

Given Afghanistan’s limited capacity to extract its resources independently, China is seen as the Taliban’s primary potential investor, especially in areas where Chinese companies have a strong interest. In April 2023, a Chinese company proposed a US$10 billion investment in Afghanistan’s lithium reserves.

In February 2024, following the Islamic Emirate’s acceptance of Chinese ambassador Zhao Xing in Kabul, China formally recognised Bilal Karimi, the former spokesperson for the Islamic Emirate, as Afghanistan’s official representative, granting him control of the Afghan embassy in Beijing. This step marks progress for Afghanistan towards international recognition amid its isolation due to Western sanctions.

While security might be China’s immediate objective in Afghanistan, its long-term focus is on fostering economic and strategic cooperation, which China views as highly important and sustainable. China’s involvement is expected to enhance Afghanistan’s security situation and promote economic development, as this supports Beijing’s broader regional influence. A key driver of this involvement is China’s goal to counter militant groups that threaten its interests.

Chinese companies are investing in numerous underdeveloped countries, although security challenges sometimes arise due to instability. If China aims for economic development and seeks stability with its neighbours, it must be prepared to accept financial risks and commit to long-term investments that promote stability.

Ongoing US sanctions on Afghanistan will likely lead Emirate authorities to strengthen ties with China, boosting economic and trade relations and encouraging Chinese investment from both state-owned and private companies. Chinese investment could improve Afghanistan’s economic situation in the medium term, which is essential for regional stability.

According to news reports, statistics from the Ministry of Mines and Petroleum show that contracts for the extraction of Qashqari oil, Takhar gold and Aynak copper in Logar have been given to Chinese investors, with more than a billion dollars invested in these three mines.

China has adopted a practical strategy in its relationship with Afghanistan, standing ready to work with the most effective authorities to safeguard its domestic and regional interests. Afghanistan primarily trades with neighbouring countries, with China being one of its largest trading partners.

The Islamic Emirate’s second term is less isolated than its first. Several countries now have embassies in Kabul, and Afghanistan’s neighbours and regional partners are maintaining diplomatic ties, recalling the negative impact of Afghanistan’s isolation in the Emirate’s first term.

To avoid becoming a battleground for major powers, the Emirate has adopted a balanced, economy-focused foreign policy aimed at fostering trade with neighbouring countries, implementing national projects, attracting foreign investment, and bolstering security. The Taliban have also implemented a more comprehensive revenue system than the former Afghan Republic, collecting personal and commercial taxes, particularly in urban areas, along with Islamic taxes like Usher and Zakat.

China is intensifying its political and economic engagement with Afghanistan to mitigate the risk of the country’s international isolation. Its primary focus is on security, with economic interests serving as a secondary priority, particularly in preventing Afghanistan from becoming a hub for terrorism. Given the interconnection between economic and security imperatives, China’s security oversight in Afghanistan has been steadily increasing. Over time, this engagement is anticipated to shift from a combined security-economic paradigm to a predominantly economic involvement, thereby fostering mutual trust and enabling greater Chinese direct investment. Effective management by the Afghan government remains essential to ensure the proper utilisation of such investments.

The 1973 coup by Prince Mohammed Daoud Khan against his cousin King Mohammad Zahir Shah raised concerns in China, as officials feared increased Soviet influence in Afghanistan. However, Daoud aimed to expand Afghanistan’s international connections and sent his brother, Muhammad Naim Khan, to Beijing as a special envoy in December 1974. Naim helped strengthen relations, securing a US$55 million long-term, interest-free loan from China, which was announced in Kabul on 1 January 1975. The loan was part of economic and technical cooperation agreements aimed at funding development projects in Afghanistan.

Afghanistan’s strategic location plus economic fragility and reliance on foreign aid make it susceptible to outside political and security influences. Countries with geostrategic importance but limited economic power often attract competition from major powers seeking influence through financial incentives. As Soviet influence in Afghanistan increased, China countered by providing an interest-free loan to secure its foothold.

Post-US withdrawal, China aims to strengthen political and economic relations with Afghanistan through its tariff exemption policy. While China has not formally recognised Afghanistan — likely to avoid US criticism — it ensures Afghanistan is not entirely isolated by using bilateral and multilateral channels to prevent political isolation. Additionally, China encourages its companies to invest in Afghan mining, fostering closer state-level ties. This approach may also facilitate Afghanistan’s future exports of natural resources to China, potentially increasing trade levels.

Regional countries view Afghanistan in a way that tightly connects the economy with politics. As a result, Afghanistan’s political isolation and limited diplomatic ties are hindering its economic growth. To foster economic development, the Emirate needs to broaden its political relations regionally and globally by meeting mutual conditions.

The newly opened Chinese restaurant, China Lanzhou Beef Noodles, illustrates the growing interest of Chinese businesses in Afghanistan, serving local Afghans and Chinese residents in Kabul daily. In addition to economic initiatives, the Chinese government is also focused on security concerns, particularly regarding Uyghur separatist activity near the Xinjiang-Afghanistan border. The Islamic Emirate, however, has pledged that no threats will arise in Afghan territory.

The Islamic Emirate is aiming to boost Afghanistan’s revenue through foreign investment, particularly in mining, to support national development projects. However, a decline in foreign investment could lead to economic instability, which may trigger political unrest. To ensure a stable Afghanistan in its vicinity, China should invest in multiple sectors of the Afghan economy and encourage other nations to contribute to its development.

China’s decision to remove tariffs on Afghan goods brings promising opportunities for Afghanistan’s economy, especially as the country faces limited international connections and internal challenges. Having reliable demand from China could motivate Afghan entrepreneurs to scale up production and enhance product quality, confident that their goods can reach one of the world’s largest markets.

Currently, Afghanistan’s heavy reliance on a few trade partners — especially Pakistan — leaves it vulnerable to political tensions and border issues. China’s support could help Afghanistan diversify its trade relationships, reducing its dependence and strengthening its resilience.

The tariff-free arrangement would also build trust between Afghanistan and China, enhancing political ties and promoting stability in the region. Afghan businesses would have a strong incentive to increase exports to China, which would deepen bilateral trade. Beyond these immediate benefits, China’s actions could set an example for other regional countries to open their markets to Afghan goods, potentially attracting more investment and advancing regional economic cooperation — growth that would benefit both Afghanistan and its neighbours.

Afghanistan holds valuable resources, such as lithium, copper and iron, which are critical to China’s expanding industrial and technology sectors, especially as it shifts toward cleaner energy. Materials like lithium for batteries and copper for infrastructure are increasingly vital. Although Afghanistan’s economy remains constrained, China’s decision to grant duty-free access to Afghan goods could boost revenue, support economic revival and open new global market opportunities.

Moreover, a tariff-free agreement with China could significantly boost Afghanistan’s economy by creating income opportunities, increasing exports and fostering economic independence and regional ties. It is recommended that the China-Afghanistan railway, which currently passes through Kyrgyzstan and Uzbekistan, be extended to improve trade between the two countries. Additionally, developing the Wakhan Corridor would establish a direct trade route between China and Afghanistan, enhancing China’s access to West Asia.

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