Sino-Kazakh Ties on a Roll

The construction of China’s New Eurasian Land Bridge through Central Asia has been gathering speed in recent months and looks to make even greater progress in 2013. At the end of 2012, China and Kazakhstan opened their second major rail link at the Xinjiang-Kazakhstan border city of Korgas. The new link comprises a 300-km section in both countries that connects their rail networks from Jiangsu Province to the rest of Kazakhstan’s rail system, which itself is being expanded through enhanced China-Kazakhstan cooperation. On December 22, 2012, Kazakhstan Temir Zholy (KTZ), the national railway company of Kazakhstan, reported that Kazakhstan and China have started using the new railway crossing of Altynkol-Khorgos. It is expected cargo transportation will reach 10 million tons in 2015 and 15 million tons in 2020. Industry observers expect the Korgas Pass—which now connects China and Kazakhstan by a railway, a highway and an oil pipeline—to handle 20 million tons of cargo per year by 2020 and 35 million tons per year by 2030 (Xinhua, December 22, 2012; Trend, December 22, 2012) [1].

Riding the Rails

Until now, the only railroad border crossing between China and Kazakhstan was between Alashankow in China and Dostyk station in Kazakhstan. This 460-km line to Urumqi in Xinjiang and Akataw Pass, where it connects to Kazakhstan’s railways, represented China’s only currently operational rail link with Central Asia. The rail crossing at Alataw Patwa handles more than 15 million tons of freight each year with almost twice as much cargo moving westward from China as eastward. So far, more than150 million tons of freight have been transported through the Alashankou/Dostyk crossing since it began operation in 1991 (TengriNews, December 24, 2012; Railway Gazette, December 24, 2012). On June 14, 2010, a freight train carrying 45 tons of liquefied natural gas (LNG) crossed the Chinese-Kazakhistani border at the Alashankou/Dostyk checkpoint en route to delivery to the Dushanzi petrochemical plant located in the northern Xinjiang Uygur Autonomous Region. The shipment marked the first time that China imported energy resources from Central Asia by rail.

Last April saw the official opening of the first transnational free-trade center in Central Asia, located along the cross-border river near the Xinjiang village of Horgos. This China-Kazakhstan International Border Cooperation Center occupies 3.43 square kilometers of land inside northwest China’s Xinjiang and 1.85 square kilometers on the Kazakh side. The Horgos center has been be developed into a "free port" with tax reimbursement for exports, duty-free purchases for visitors and provisions for 30-day visa-free stays This special economic zone supports trade negotiation, financial services, commodity display and sales, warehousing of goods, transportation, hotels, restaurants, shopping, entertainment and tourism. Additionally, border crossing procedures have been improved in this cooperation zone, making it easier and faster for border inspection authorities and civilians to navigate within this area (CCTV, June 3, 2012).

Construction also will begin this year on a high-speed railway line between Kazakhstan’s capital, Astana, and the former capital Almaty, which is still most important commercial hub, benefitting from its proximity to China. Trains along this 1050-kilometer Astana-Almaty line, which has many bridges and elevated trains, are projected to travel as fast as 350 km/h. This will reduce the travel time for the estimated five billion passengers who will use it to a four-hour journey. China’s will own a 30 percent share of this $16 billion project (TengriNews, January 4, 2012; Xinhua, February 23, 2011).

Energy the Driving Force for Sino-Kazakh Relations

Although security considerations initially dominated Beijing’s policies toward Kazakhstan and its other newly-independent Central Asian neighbors, economic and especially energy concerns have become increasingly important. Thanks to its energy riches, Kazakhstan has become China’s most important economic partner in Central Asia. Commercial ties between Kazakhstan and China were minimal during the first decade of Kazakhstan’s independence due to the economic chaos in Central Asia following the breakup of the integrated Soviet economy as well as the legacy effect of the security barriers erected along the sealed Sino-Soviet frontier during the Cold War. The overlapping ethnic groups between the two countries helped launch the initial commercial ties between Kazakhstan and China, overcoming those original barriers. During the last decade, Kazakhstan has achieved rapid economic growth rates due largely to the soaring value of the country’s oil exports. These developments have raised the country’s per capita gross national income to around $12,000 today and helped position Astana as a key Chinese partner.

In a 50-50 joint venture, the Chinese National Petroleum Corporation (CNCP) and KazMunaiGaz built a lengthy oil pipeline from Kazakhstan’s Atyrau port along the Caspian coast to Alashankou in China’s northwest Xinjiang region. When it began operating on a limited basis in December 2005, the delivery marked the first eastward flow of Central Asian oil and China’s first receipt of imported oil by pipeline. Now, one fifth of Kazakhstan’s oil flows to China (People’s Daily, December 20, 2012). In 2010, the Central Asia-China pipeline began transporting natural gas from Turkmenistan through Uzbekistan and Kazakhstan to China. This 2,100-kilometer gas pipeline is expected to deliver around 40 billion cubic meters (bcm) annually by 2015.

In another joint CNCP-KazMunaiGaz project, Astana has invested $130 million to augment a $1.8-billion loan from the China Development Bank, to construct a 1,500-km natural gas pipeline from Beyneu in western Kazakhstan to Bozoi Shymkent. From there, the 50-50 owned Beineu-Shymkent Gas Pipeline LLP will connect with the Central Asia-China gas pipeline as well as provide gas to southern Kazakhstan, a region that must currently import gas (IANS, December 13, 2012). It also plans to construct a Pipeline “C” that would provide a third Kazakhstani gas pipeline into China. When all three conduits are fully operational in 2015, they will deliver up to 60 billion cubic meters of gas to China annually—or about half of the PRC’s anticipated demand for imported gas then (UPI, September 16, 2011). At the end of 2012, the CNCP opened the last section of its $22 billion, 8,704-km pipeline, which can carry as much as 30 bcm from Huoerguos on the China-Kazakhstan border in northwest Xinjiang Uygur region to Shanghai, Guangzhou and Hong Kong (IANS, December 31, 2012).

The volume of Kazakhstan’s trade with China now exceeds that with Russia for the first time in centuries and China has been Kazakhstan’s second-largest trading partner since 2009 (China Daily, December 3, 2011). Two-way trade between the two countries increased from $1.29 billion in 2001 to $33 billion in 2012—or almost one third of all Kazakhstan’s foreign trade. At least for now, China is surpassed by only the European Union, which has almost a 40 percent collective share in Kazakhstan’s total external trade due to its massive purchases of Kazakh oil (People’s Daily, December 20, 2012; European Commission, October 23, 2012; China Daily, June 12, 2012). On December 8, 2012, during discussions with visiting Chinese Vice Premier Wang Qishan in Astana, President Nursultan Nazarbayev said Kazakhstan will intensify its efforts to finish the natural gas pipeline that is being co-built with China by 2014 in order to increase natural gas exports to China (Ministry of Foreign Affairs, December 8, 2012).

Bilateral economic ties should expand further given that both countries regularly enjoy some of the world’s fastest growth rates and China’s growing demand for Kazakhstani’s rising exports of oil, natural gas and uranium (“China’s Uranium Quest Part 2: The Turn to Foreign Markets,” China Brief, September 2, 2011). When Kazakh Prime Minister Karim Masimov met with Premier Wen Jiabao on April 9, 2008, he stressed Astana’s commitment to enhancing bilateral commerce through infrastructure development, specifically citing the need to improve Kazakhstan’s ports, customs and banking systems, railways, highways and other commercial networks involving China (Ministry of Foreign Affairs, April 9, 2008). That month, the two governments signed an Action Plan for Cooperation designed to diversify bilateral trade beyond commodities and included 20 development projects in agriculture, new technologies, cross-border trade, transportation and communication [2]. When he visited Beijing in last June, Nazarbayev said he “welcomes Chinese investment in the Central Asian country’s transport infrastructure, and hopes that the pace of the trans-border railway and highway projects between the two countries will be quickened” (Xinhua, June 6, 2012). Three months later, Premier Wen called for China and Kazakhstan to accelerate their cooperation in trade, infrastructure construction and other economic areas. The two governments recently set the goal of raising bilateral trade to $40 billion by 2015 (Global Times, December 9, 2012; Xinhua, September 3, 2012).

Given their expanding trade ties, it is unsurprising that China’s railroad building efforts have primarily focused on expanding Kazakh transit capacity. Beijing’s ambitions, however, extend far beyond that. China has been anchoring the new 11,870-km Eurasian Land Bridge that extends from Lianyungang city to Rotterdam, a major West European port. Using this uninterrupted railroad route through Central Asia, Russia and Europe allows cargo to travel five times faster from China to Western Europe than by ship. Given its higher transportation costs, the rail route is most suitable for high-value-added freight such as for electronic and other mechanical goods (China Daily, December 12, 2012). Beijing has been using its leading role in the Shanghai Cooperation Organization and other multinational institutions to mobilize multinational support behind these Eurasian transportation and other infrastructure projects as it tries to move up the value-added chain.

China and Kazakhstan also are major players in the 8,700-km Western Europe-Western China international transport corridor, which will become the shortest road transport link between Central Asian countries and Europe. Once completed in late 2013, containers will take just two weeks to move from China’s eastern seaboard to Europe, three times faster than if they went by sea. The European Bank for Reconstruction and Development, the World Bank, the Asian Development Bank and the Islamic Development Bank are providing millions dollars in funding for the highway. More than 30,000 Kazakhstani workers are helping construct a 1,734 km stretch that passes through four regions of Kazakhstan (Aktobe, Kyzylorda, Zhambyl and South Kazakhstan). Nazarbayev called the highway the “construction of the century” in his 2012 State of the Nation address. In his Kazakhstan-2050 national development strategy announced last month, Nazarbayev said the existing projects should double the transit capacity across Kazakhstan by 2020 and set a new goal of increasing this capacity ten-fold by 2050. Nazarbayev also declared Kazakhstan should help develop key transit hubs throughout Eurasia and beyond (www.akorda.kz, December 14, 2012; The Financial, December 1, 2012; Trend, January 20, 2012).

Remaining Challenges

China is making progress in improving its transportation links with Greater Central Asia. The existing and proposed near-term connections between China and its western neighbors will still service only a small share of China’s foreign commerce, which will likely remain dominated by containerized cargo shipping by sea. Much additional progress is needed in this area to achieve the higher levels of bilateral commerce sought in both Astana and Beijing. In addition to the underdeveloped economic infrastructure connecting the two sides, other impediments to expanded commercial exchanges include unsupportive visa policies, special regulations on Chinese consumer products, corrupt commercial practices in both countries and Kazakhstan’s absence from the WTO. Ironically, one factor discouraging Kazakhstan’s rapid entry into the WTO has been Kazakhs’ concerns about having their national industries devastated by Chinese competition in the absence of protective barriers—as happened with neighboring Kyrgyzstan.

Kazakhstan’s close economic ties with Russia also have disrupted some Sino-Kazakh economic ties. On the one hand, much Russia-China trade goes through Kazakhstan. On the other hand, Russia has sought to prevent the newly-implemented Russia-Kazakhstan-Belarus Customs Union from serving as a backdoor for the smuggling of cheap Chinese goods into Russia by pressing Kazakhstan to tighten controls at the Sino-Kazakh border before Russia and Kazakhstan eliminated their joint checkpoints (EurasiaNet, May 5, 2011). Some Kazakhstanis complain they can no longer buy cheap Chinese imports, but must now spend more to purchase often inferior quality goods from Russia and Belarus. Vladimir Putin’s proposed Eurasian Union, which Astana has said they would join, could erect further economic and perhaps other barriers between China and Kazakhstan.

Conclusion

Both China and Kazakhstan benefit from their cooperation in trade, transport, and energy; however, these developments do not portend a deeper, strategic alliance between the two countries—both of which are strongly committed to their independence. The Kazakh government is especially keen to maintain balanced relations between China, Russia, Europe and the United States to avoid domination by any single actor. Chinese leaders also have been restrained about antagonizing Russia by appearing to threaten Moscow’s interests in the region. In many cases, these coincide, or at least do not conflict, with China’s core regional interests. Yet, this harmony also results from Kazakhstan and the rest of Central Asia’s being of lower strategic priority for Beijing than for Moscow. China’s expanding interest in securing Central Asian energy and economic opportunities could lead Beijing to reconsider its policy of regional deference. The Chinese authorities are still developing their strategies, tactics and capabilities to defend their growing foreign economic assets, which in Central Asia include energy pipelines and the foreign operations of several major companies. Central Asian as well as Chinese and Russian policymakers would prefer if Beijing could rely on the local authorities, supported by Moscow, to protect these assets, but the failure of these non-Chinese actors might compel all parties to accept, if reluctantly, a large and enduring Chinese security presence in their region.

Notes:

1. The Korgas Pass is located 200 km from Astana, 670 km from Urumqi, and less than 100 km from Yining, the principal city in China’s Ili Kazakh autonomous prefecture.
2. Rouben Azizian and Elnara Bainazarova, “Eurasian Response to China’s Rise: Russia and Kazakhstan in Search of Optimal China Policy,” Asian Politics & Policy, Vol. 4, No. 3, 2012, pp. 377–399.