As President Biden and President meet on June 16, on the sidelines of the NATO meeting both leaders will have Chine in their minds. Even if they don't discuss China's relations with Turkey, they will both take these relations into account as they discuss the complex U.S.-Turkish relations.
President Biden is more likely well aware that the sanctions and the diplomatic pressures that he and President Trump have put on Turkey have been offset significantly by Chinese economic support. He also has to take into account this Chinese support if he tries to put more pressure on Erdogan on human rights or purchase of S-400. Indeed Turkey's ability to withstand the Western sanctions (Both U.S. and Europe) up until now is thanks to several major Chinese investments in recent years.
Turkey's external debt is very significant relative to its GDP and even though a large share of it is corporate and banking sector debt, it has put serve severe pressure on Turkey's currency, Lira. These pressures have led to a steady and gradual devaluation of Lira in the past five years. One U.S. dollar, which was exchanged for 2.9 Turkish lira in June 2016, was trade for 8.67 lira's in the first week of June 2021.
Yet as bad as this devaluation has been, most experts believe that it could have been much worse had it not been for Chinese investments that injected hard currency into Turkish economy. In 2018, for example, when the value of Lira declined by more than 40% the Industrial and Commercial Bank of China offered Turkey $3.6 billion in loans for ongoing construction projects in the energy and transportation sector.
June 15, 2021: President Biden and President Erdogan met this week during the Nato gathering in Europe. Most experts expect the two sides to compartmentalize their disagreements and focus on issues that they agree with. However, the new direction in US foreign Policy under President Biden might raise new concerns in US-China relations. It now appears that the United States foreign policy is transitioning from President Trump's "America First and to Hell with the Rest of the World" to President's Biden's "All United Against China". The United States will start this policy by focusing on Nato members first.
In recent years many European Nato members have developed strong economic ties with China and have received significant amounts of Chinese investments. Among these countries Turkey stands at the top of the list and its economic ties with China have expanded rapidly in the last five years. They have expanded partly in response to the multiple U.S. and European sanctions against Turkey.
If the United States asks Turkey to cut back its ties with China as a precondition for improvement of bilateral ties, this demand will put President Erdogan in a difficult position.
July 1, 2021: President Erdogan affirmed his government's commitment to the construction of the 45 kilometer Istanbul Canal which will serve as Turkey's second waterway between the Mediterranean and the Black Sea. This project will cost between $9 billion and $16 billion and under current economic conditions of Turkey, government and domestic investors can only supply a small portion of the cost. Western investor's and creditors are also likely to remain cautious about lending large sums for this project because of Turkey's large external debt of approximately $448 billion. The only major foreign investor for this maga-project is China. China will not only offer a large share of the project's financing but several Chinese construction firms have already expressed their readiness to participate in this project. Consequently the Istanbul Canal project will increase China's investment and project footprint in Turkey.
