Risks and rewards

With countries now prioritizing economic security there are both opportunities and challenges for SCO cooperation

The US-led West is bent on the "double containment" of China and Russia. With rising geopolitical tensions, the economic cooperation of the Shanghai Cooperation Organization is facing challenges on multiple fronts.

First, economic security is now high on the agenda of all countries. The once prevailing pursuit of "efficiency and profits" has turned into "security first" in the global layout of industry and supply chains, which are expected to become even more localized, diversified and clustered. Against such a background, security issues will be more pronounced in the SCO's economic cooperation.

Second, severe disruptions in the global supply chains of energy and strategic minerals have arisen from the sanctions imposed against Russia.

At the same time, the United States has consistently coerced its allies into trying to contain China, the impact being felt equally by the industry and supply chains in China as well as by global and regional trade and investment.

Third, the downward economic pressure on the SCO member countries has resulted in a lack of impetus in regional economic cooperation.

Economic and trade activities involving Russia or Russian entities and individuals are usually subjected to strict sanctions that generate losses and add risks to the economic cooperation under the SCO framework.

At present, with the major power competition intensifying, the world economic order is going through profound transitions, and regional clustering is becoming ever prominent. With the SCO expanding its reach and influence in Eurasia, South Asia and the Middle East, the regional economic cooperation of the SCO is presented with challenges and opportunities alike.

First, the layout of global industry and supply chains is increasingly being shaped by clustering and friendshoring patterns under the rising influence of regional cooperation mechanisms.

Second, Russia's development in the energy, finance and technology sectors is inseparable from the outside world. Therefore, while ensuring its sustenance needs, it is striving to strengthen economic ties and cooperation with the non-Western countries and organizations such as the SCO.

Third, the Eurasian countries have strong needs for economic development, while China boasts a large market, sufficient capital and high-caliber technological conditions. The cooperation carried out under the Belt and Road Initiative, which has no political strings attached and endorses the concept of common development, is winning recognition and engagement from regional countries.

Fourth, the international monetary system is going through changes, especially with a rising renminbi. Since the international currencies such as the US dollar and the international financial communication systems such as SWIFT have been increasingly weaponized as part of the Western sanctions on Russia, countries around the world are seeking to reduce their reliance on dollars in terms of payment methods and instead turning to other safer alternatives, among which the renminbi stands out. According to the International Monetary Fund, by the end of 2022, the size of the renminbi reserves held by global central banks was $298.4 billion, accounting for 2.7 percent of the Currency Composition of Official Foreign Exchanges and making it a top five reserve currency in the world. The internationalization of the renminbi is contributing to a reciprocal and spiraling economic cooperation among the SCO countries.

Fruitful results have been secured and laid for further cooperation in the SCO.Since its inauguration the organization has established a full set of mechanisms for economic cooperation, accomplished a number of significant connectivity infrastructure programs, and put in place a complex infrastructure network composed of railways, highways, oil pipelines and power grids.

The "Shanghai Spirit" is a fundamental principle of the SCO and is where its vitality lies. The SCO has become an important platform for reaching consensus among the member countries in the face of common threats and challenges. More importantly, SCO cooperation puts into practice the three global initiatives proposed by China — the Global Development Initiative, the Global Security Initiative and the Global Civilization Initiative.

Considering the differences in natural resources, economic size, development stage and development models of the SCO members, risk resistance means that member countries have different needs and roles to play in the regional cooperation. Emphasis needs to be laid on each country's economic development strategies, attention paid to their most urgent concerns and pragmatic means for cooperation explored, so that new potential for cooperation can be tapped.

China's industries are highly complementary with those of the other SCO countries. Enhancing cooperation in industrial capacity will not only help ease China's structural adjustment, but also boost the industrialization and modernization of other SCO countries.

All the member countries see the development of the digital economy as a long-term development goal, so China could also leverage its advantages in the digital economy and work together with other SCO countries to enhance digital cooperation. This ranges from promoting digital industrialization and industrial digitization in Eurasia, unearthing the potential of cooperation in cross-border e-commerce, smart cities, remote medical services, smart agriculture and other fields, and contributing to the development of new business formats.

Guo Xiaoqiong is a research fellow at the Institute of Russian, Eastern European and Central Asian Studies at the Chinese Academy of Social Sciences. Cai Zhen is an associate research fellow at the Institute of Finance and Banking at the CASS. The authors contributed this article to China Watch, a think tank powered by China Daily.The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.