Chinese Money Finds a Mostly Warm Welcome in Kazakhstan

Central Asian energy resources and transport links have become crucial elements in China’s long-term economic and security strategy, even as Chinese imports now dominate many Central Asian markets. This is the second in a series of articles on the manifold impacts of China’s growing presence in the Central Asian region.

Tan Tie Hur, 52, is a Chinese married to a Russian from China named Sergei. They came from China’s Inner Mongolia to Kazakhstan some 15 years ago on the invitation of Sergei’s relatives and now work in the Artem bazaar in Astana. Their two grown children, a boy and a girl, married locals and work at office jobs in the Kazakh capital. All four hold official permission to live in the country.

This family is doing relatively well and intends to remain here. They say Kazakhstan is a good place to live and offers them many more opportunities to achieve what they can, if they work hard and adapt to local life. They are keen to integrate into Kazakh society while staying in touch with the closely linked Chinese community here.

Officially, Kazakhstan is home to at least 130 ethnic groups. The presence of many cultural communities is a source of legitimacy for the authoritarian government that grants more freedom to groups than to individuals. Kazakh nationalists argue that the propaganda overstates the multiethnic character of the state and that the true number of ethnicities is no more than 50. Nevertheless, the success in managing relations among potentially quarrelsome neighbors is something almost mystical to many here, who recall that political analysts in the period after independence predicted Yugoslav-type ethnic violence.

The number of Chinese thought to be living in Kazakhstan ranges widely, from the official figure of 30,000 up to 10 times that, according to independent sources. Even the upper estimate does not represent a huge number in this country of 16 million. Nevertheless, the fears of Chinese intrusion that arose during the first years of Kazakhstan’s independence are resurfacing, largely as a result of the growing Chinese presence in Kazakhstan’s large and economically vital energy sector.

Chinese students are increasingly common in Kazakhstan and Kyrgyzstan, the countries in the region with the closest economic links to China. These two Chinese are students in a Russian course in Bishkek, Kyrgyzstan. Many course attendees intend to return to China to become interpreters using their newly-acquired Russian skills.

OIL, GAS, ROADS, AND RAILWAYS

Indeed, in 2009 alone Chinese companies made impressive inroads into the Kazakh energy industry. In December, the state-owned Chinese National Petroleum Corp. (CNPC) acquired half of oil company MangistauMunaiGaz, the fifth-largest company in Kazakhstan by one estimate, for $2.6 billion. That huge investment capped two months of intense activity by state-led Chinese energy companies: China Investment Corp. spent nearly $1 billion at the London Stock Exchange for 11 percent of a subsidiary of the KazMunaiGaz national oil and gas giant, and Sinopec won a huge contract to upgrade an oil refinery in the Caspian Sea city of Atyrau. Sinopec beat out the Japanese Marubeni Corp. and its far more sophisticated technology with an unrealistically low bid, the Atyrau civic organization Arlan alleged. Arlan claimed that Sinopec lacks the international experience necessary to implement such complex projects, and considering the proven and alleged cases of bribery by company employees in the past, this view should not be dismissed out of hand.

Recent statements by opposition politician-banker in exile Mukhtar Ablyazov that Chinese companies acquired many Kazakh oil assets from 2002 to 2007 through corrupt schemes in cooperation with President Nursultan Nazarbaev’s son-in-law, Timur Kulibaev, only reinforce the belief that China is using the weakness of a shadow state to promote its own national interests in Central Asia.

The Chinese economic apogee to date came in December, when the Turkmenistan-Uzbekistan-Kazakhstan-China gas pipeline was launched by the leaders of those countries. At a stroke, the pipeline swept away the Russian monopoly over Central Asian gas transport and rang alarm bells in the boardrooms of U.S. global energy concerns that had looked on this region as peripheral. The pipeline will bring huge economic benefits for Kazakhstan in transit fees, according to Asel Elimesova, a KazMunaiGaz spokeswoman. Furthermore, it will increase Kazakh leverage over its impulsive southern neighbors, even if under a common Chinese-made umbrella.

These important deals were complemented by a $10 billion loan from China negotiated by the government in the spring of 2009, funds that will largely be channeled to the Kazakh political elite through lucrative contracts.

“The ossified authoritarian regime needs economic resources to keep a grip on the country. But because it wants its people to remain economically dependent on state-administered resources and, therefore, stay politically disempowered, it does not encourage domestic investment and [small-business] development, but uses external economic support instead,” said a Kazakh political analyst who requested anonymity.

China’s Central Asian ventures have the backing of international financial institutions such as the Asian Development Bank, where Chinese influence is strong, according to European experts. The Central Asia Regional Economic Cooperation program, led by the bank, is promoting the Western Europe-Western China highway that will cross Kazakhstan, part of a $6.7 billion regional transport investment scheme also backed by the World Bank, European Bank for Reconstruction and Development, and Islamic Development Bank. The Kazakh government claimed this project as its own achievement, bringing investment and jobs into the country in a time of crisis. Ultimately the project will redound to China’s good, as it builds up alternative transportation routes for its products.

Moreover, recently the Chinese Railway Ministry announced that Beijing plans to build transcontinental high-speed rail links passing through Eurasia. These projects are drawing Kazakhstan into a web of transportation arteries from China to the West. In reaction, many people in Kazakhstan saw the establishment of the customs union this year by Russia, Kazakhstan, and Belarus as the only chance to shield the country from growing Chinese economic expansion. However, this will be done at the cost of increasing Russian influence and making Chinese-made products more expensive.

CENTRAL ASIA IS NOT AFRICA

Opposition sources generally concentrate their anti-Chinese rhetoric on the energy sector. Whether Chinese companies own a third of the Kazakh oil industry, as the opposition claims, or a quarter, as state officials insist, some experts say there is no need to worry, as Western firms are far ahead of second-place China in winning Kazakh energy assets.

The field for Chinese companies has been restricted to assets that Western competitors aren’t interested in, says Julia Naney, an analyst for PFC Energy in New York. Major Western oil companies are stakeholders in Kazakhstan's most significant oil and gas fields – Tengiz, Karachaganak, and Kashagan – and that will not change, Naney says. “Western companies, when their output is added up, will continue to be the dominant oil producers in the country.”

Chinese companies typically buy into ongoing, mature oil-industry assets, whereas the major consortia of Western oil companies doing business here have concentrated on developing giant, virgin oil fields. Despite trailing behind the Westerners, the involvement of Chinese state-led business is growing in the country. According to leading Kazakh economist Olzhas Khudaibergenov, Chinese companies already control about 10 percent of the Kazakh economy.

Kazakh public experts share some of the popular concern over this wave of Chinese expansion into the local economy, though they couch their views in more sober fashion than the frenzied language about the coming Chinese conquest sometimes found in the Kazakh opposition newspapers Svoboda Slova and Respublika.

Khudaibergenov argues that China’s governmental-corporate strategy in the country makes sense, given Kazakhstan’s location, resources, and proximity: “If the French, let’s say, simply intend to make profits, the Chinese see our resources from the point of supply to their economy and their economic expansion to neighboring countries. How else can one possibly interpret their actions?” he asks, listing a string of investments from oil fields to developing gas stations, culminating in the recent loan deal. “Most importantly, Kazakhstan is a huge territory with vast mineral resources and small population size, bordering China but not Europe. Considering this, it is logical to say that any acquisition of local [oil and gas] fields by China can be judged as a legal framework for de facto ongoing expansion.”

In his opinion, the government’s $10 billion loan was “illogical” seeing that the state has built up $40 billion to $45 billion of oil taxation revenues in its National Fund meant for future generations or for use in financial emergencies.

Marat Shibutov, representative of the Association for Border Cooperation, agrees that China is pursuing a different energy strategy than Western companies, which mainly go after assets that require long-term investment. “The Chinese buy already-developed assets and have an entire production chain in the PetroKazakhstan company, which is another vertically integrated company in addition to KazMunaiGaz. It can dictate the prices on the internal market and this is dangerous.”

Many, looking at China’s expansion in Kazakhstan, point to China’s recent investments and loan promises in Africa as evidence of a global strategy aimed at securing supplies of energy and other resources. However, Chinese behavior in Kazakhstan is less altruistic and socially oriented, compared with Beijing’s promises to build railways, hospitals, and schools in resource-rich African countries in exchange for access to those resources.

What efforts there have been in the field of social corporate responsibility by Chinese oil companies in Kazakhstan have been controversial. In 2009 a joint report by a civil society group in the northwestern Aktobe region, Zhansaya+, and the Soros Foundation-Kazakhstan noted that CNPC-Aktobemunaigaz, a CNPC subsidiary, had helped finance educational and health-care facilities in the area, but concerns remained over transparency and public oversight of the funding. Local people complained of a lack of information about the social investments and expressed serious worry over the environmental costs of oil extraction by the Chinese company in the region, the report said. In early 2010, Aktobe-based newspaper Diapazon reported that local workers were paid less than Chinese colleagues at the same professional level and said this might be a violation of their labor rights.

“This is a question of tactics. At the China-Africa summit, our neighbor positioned itself as an opponent of the U.S., and the difference was about a more humanistic approach, which means lower interest rates and building up infrastructure projects,” Khudaibergenov says. 

Shibutov speculates about another difference, one that might encourage pessimistic Kazakhs: “Africa is a destination for future Chinese emigration, a further formation of the diaspora. And Kazakhstan is not.” 

PRESENT AND PAST

Whatever the skepticism of many experts, fear of a mass migration of Chinese remains stubbornly alive in Kazakhstan, especially among segments of society where such views are politically useful. In January, members of the Talmat and Azat opposition groups rallied in Almaty to protest when rumors spread of imminent land leases to Chinese peasants. Although reports of Kazakh lands being leased to foreigners have become almost a tradition in the state-controlled media, this report stirred some of the most active segments of society – civic movements, Kazakh nationalists, and the so-called political opposition – to react seriously: a demonstration of the alarm within Kazakh society over possible domination by a power some here accuse of malign intentions against the descendants of nomadic Turkic tribes against whom imperial China waged war for centuries.  

History is in part a burden for the modern Kazakh-Chinese relationship. According to many Kazakh experts, China considers some parts of Kazakhstan to be its ancient territory, lost to Russia as a result of an inequitable treaty in 1851. The towering historical figure of Genghis Khan also comes into this equation. Imperial China fought barbarian nomads – Huns, Turks, Uighurs, and Mongols – for centuries. China is now implicitly competing for the cultural and political legacy of Genghis Khan with Russia, Mongolia, and Kazakhstan, perhaps sensing that a revival of this great heritage might serve to bind more closely together groups who now populate the vast Eurasian land masses. In Mongolia, the legacy of Genghis Khan has been blown up into a myth, while in Kazakhstan the great leader is often claimed to have been a Kazakh. Only 46 kilometers, and a stretch of Russian and Chinese territory, separates the Kazakh and Mongolian borders in northeastern Kazakhstan. It is no surprise that every country in the region is producing plenty of films and other cultural products with its own take on Genghis Khan’s legacy. Certainly a Chinese film series on the nomad lord was quite popular in Kazakhstan, especially among ethnic Kazakhs.

Beijing seems to be cautious about competing for cultural, as well as economic, influence in a country where Islamic, Western, and Russian lifestyles co-exist with indigenous customs, although China recently opened a Confucius Institute at the Kazakh National University. Already some 4,500 Kazakh students are studying in China in a sign that they or their parents guess that Chinese will soon dominate the Kazakh economy.