China and Kazakhstan: Inevitability of Beijing’s Growing Influence

For centuries, China was a major source of wealth for the nomadic peoples of Central Asia: the relationship between the steppe and one of the most developed settled civilizations had been full of both bloody confrontations and prosperous trade. This history has imprinted itself on Central Asians, and Kazakhs in particular, who share a long border with China and who hold mixed feelings about the expanding Chinese influence in their country, ranging from open sinophobia to an acceptance of its inevitability.

The news that China is likely to secure the Texas-based oil company ConocoPhillips’ share in Kashagan, Kazakhstan’s largest oil project (see EDM, July 9), was not sensational but still raised eyebrows. The Chinese offer of $5 billion had outbid India’s intention to participate in the project. India’s involvement in developing Kashagan would have complemented Kazakhstan’s multi-vector foreign relations and economic policy, exposing its domestic oil market beyond just Western oil companies (which still dominate the scene), in addition to Russia and China. Yet, by acquiring ConocoPhillips’ stake in Kashagan, Chinese holdings in the Kazakhstani oil market are likely set to increase significantly.

Currently, China accounts for 12 percent of Kazakhstan’s oil exports, while the European Union takes up some 72 percent (https://www.platts.com/latest-news/oil/moscow/kazakhstan-to-buy-conocophillips-84-share-in-26069211). It is difficult to judge the exact share China holds in the oil market due to unclear ownership estimates—China had been acquiring most of its stakes in Kazakhstan’s oil projects in partnership with the Kazakhstani state oil company KazMunaiGas Exploration Production, in which China Investment Corporation holds an 11-percent share (https://www.kmgep.kz/eng/investor_relations/shareholder_structure/).

The increase of the Chinese presence in Kazakhstan’s oil sector appears logical. During the past decade, China made remarkable progress building pipelines and creating a principally new pattern of transportation infrastructure with other Central Asia countries. In a relatively short timeframe, China has launched the construction of the Kazakhstan-China three-stage oil pipeline, built the Central Asia–China gas pipeline, opened new highway routes in Tajikistan and just recently launched a “Silk Road” railway that proceeds from China to Europe through Kazakhstan (https://www.reuters.com/article/2013/06/10/us-kazakhstan-railway-idUSBRE9590GH20130610). In fact, the new regional pipelines not only carry gas and oil to China, but also grant oil and gas access to local energy-deficient areas and thus change the energy balance in Central Asia, while simultaneously enforcing Chinese and Central Asian economic inter-dependencies.

In Kazakhstan alone, despite barriers erected by the Customs Union with Russia and Belarus against Chinese goods, trade with China continues to flourish: it reached $24 billion in 2012, increasing two-fold from $12.1 billion in 2008 (https://newskaz.ru/economy/20130406/4952898.html). Customs tariffs may have hurt thousands of small shuttle traders in Kazakhstan and led to increased prices for most of consumer goods originating from China. Yet oil, metals, wheat and other resources have continued to flow freely to China. The trade exchange is, in fact, almost equal in relative terms: in 2012, Kazakhstani exports to China made up 17.9 percent of all of the country’s exports; while goods coming in from China represented 16.8 percent of all Kazakhstani imports (https://russian.cri.cn/841/2013/02/14/1s457685.htm).

Relations between the two countries have strengthened during the financial crisis. In 2010, China allocated two credit lines to Kazakhstan’s welfare fund Samruk Kazyna and to the copper corporation Kazakhmys totaling $13 billion (https://news.nur.kz/155527.html). Part of this debt was paid back just last month—the joint venture between KazMunaiGaz National Company and the China National Petroleum Corporation (CNPC) paid back $2.8 billion originally borrowed from the Export-Import Bank of China to buy Kazakhstani oil producer Mangistaumunaigas. It is also rumored that by providing China with access to Kashagan and possibly Karachaganak, a giant gas field in western Kazakhstan, Astana will close out some of its outstanding debt to the Chinese. The “loans in exchange for resources” mechanism, which China employs, apparently appeals to Kazakhstan’s leadership and gives it a certain flexibility, not to mention allegedly generous gifts from the Chinese.

Due to the mutual benefit of trade and investment relations, China will remain a key investor in Kazakhstan, despite domestic warnings of a “Chinese threat” and the obvious economic asymmetry in the bilateral relationship. Some opponents of Kazakhstan’s Chinese vector argue that the Central Asian republic’s economic relationship with Russia is more natural. But in fact, nomadic people in Central Asia had always benefitted more from trade with China than they did from Russia. At the same time, China is aware of its “neo-imperial image of a hunter for natural resources” and tries to alleviate it by investing in local community development. Nevertheless, China’s contracts in Kazakhstan often stipulate that its projects should be exempt from local legislation, such as regulations on hiring local workers and buying local goods and services (see, for example, the provisions of a law on the Kazakhstan-China gas pipeline: https://www.newskaz.ru/economy/20130704/5282953.html).

China is a key investor in two Kazakhstani oblasts, Aktobe and Kyzylorda, where it has large oil-producing companies that sell gas to the local population at much cheaper rates. China is also heavily involved in Kazakhstan’s ambitious industrialization program—it lent significant funds to the state Development Bank of Kazakhstan and participates in such projects as the construction of an aluminum plant in Pavlodar, the Moinak hydro-power project, the reconstruction of two oil refineries in Atyrau and Shymkent, as well as the construction of a gas chemical complex. China thus differs significantly from Western investors, who often become embroiled in scandals over local regulations, environmental fees and tax evasion, and do not agree to help the government in its economic diversification efforts (https://kazbei.org/themes/287-kitay-drug-ii-vrag-dya-kazahstana.html?lang=ru).

With increasing economic and trade cooperation, China plays an ever larger role in developments in Central Asia. Consequently, Beijing is now considering bolstering its diplomacy, soft power, as well as cultural and intellectual exchange with its western neighbors in a more systematic way (Wang Jisi, “‘Marching Westwards’: The Rebalancing of China’s Geostrategy,” Center for International and Strategic Studies, October 7, 2012). Some in the region accuse Chinese economic expansion of being destructive and utilitarian because of its disregard for local political conditions and labor abuses, but it is clear already that the Chinese foothold in Central Asia will stay firm. Central Asians can either try to oppose it or use it to their benefit, remembering the successes and failures of their distant ancestors.