Taliban’s troubles are canaries in the mines for Chinese investors

Earlier this month, fighting erupted in the Panjshir Valley, a long-standing resistance stronghold, between the Taliban and anti-Taliban military alliance the National Resistance Front.

“The situation in Afghanistan is still unstable,” Zhu said. “Although the anti-Taliban movements are so far unable to challenge the government, they haven’t been eliminated, either. The possibility of those movements making progress in the future can’t be ruled out. Therefore, current investments in mining still face the risk of a power reshuffle or sabotage from opposition and terrorist forces.”

A Chinese mineral trader surnamed Peng, who started to export Afghan ore to China in 2018, agreed that there was risk attached to Chinese investment in mining projects.

“I’ve opted to buy minerals from Afghans rather than get involved in mining projects myself, even though the latter is more lucrative,” Peng said.

“The Taliban’s control over some areas is still limited, and local militant groups emerge from time to time. The other issue is that we don’t fully understand the conditions and laws. People sometimes just don’t keep their promises.”


Taliban fires weapons in air to disperse crowds at anti-Pakistan protest in Kabul

Taliban fires weapons in air to disperse crowds at anti-Pakistan protest in Kabul

Peng said poor infrastructure also made Chinese businesspeople hesitant to invest. He travels between Afghanistan and Pakistan to export Afghan minerals to China.

“The Afghan partner enterprise that supplies my talc mine had to shovel a path themselves with a forklift truck to transport the talc,” he said. “That path is still very dangerous and trucks risk tipping over.”

Zhu said the limitations of Afghan infrastructure after four decades of turmoil and war would significantly increase foreign companies’ costs – including for China’s Metallurgical Group at the copper mine in Mes Aynak.

Despite the obstacles faced by China’s state investors, some private business owners have persisted.

Yu Yong, a trader based in Kabul, has been trading internationally, including in Afghan gemstones, for the past five years and is preparing to invest in mining projects.

“A lot of big private firms in this lucrative industry can afford to build infrastructure themselves,” he said. “On the security front, I think it will be better than under the previous government when there were incidents in which officials colluded in attacks that they blamed on terrorists, so that they could embezzle state funds allocated for repairs. I think the Taliban has no interest in sabotaging the economy.”

What concerned Yu was the Taliban’s recent lack of experience in policymaking.

“It has not yet been required to set standards for companies applying for mining licences, or to make policies for tax collection,” he said. “That could take months. Investors who rush in now to get the most profitable mine will have operating costs while waiting for those policies. Perhaps months later that will turn out to be a waste of money.”

Both Yu and Peng said potential economic sanctions against the regime could impede mining investment, because one effect could be to limit the flow of US dollars, the payment currency in Afghanistan.

US President

Joe Biden

last month said that the possibility of imposing sanctions on the Taliban would “depend on their conduct”.

Yu said that whether China established diplomatic relations with the Taliban government would also be a decisive factor for him.

“Trading involves considerations such as how to exchange capital and get visas, and whether China is willing to import the minerals,” he said. “Without diplomatic ties, there will be lots of follow-up problems.”