UNIVERSITY OF AMSTERDAM
G
RADUATES
CHOOL OFS
OCIALS
CIENCESTHE INVESTMENT BEHAVIOR OF CHINESE NATIONAL OIL
COMPANIES IN KAZAKHSTAN
AN ANALYSIS OF ENERGY ELITES AND THE GEOPOLITICAL AND GEOECONOMIC
CONSEQUENCES OF TRANSNATIONAL ENERGY INVESTMENTS BETWEEN
(1997-2015)
MSc Thesis Political Science: International Relations Research Project: The Political Economy of Energy
June 26th, 2015
Author: Supervisor:
G.P. (Guido) van Linschoten Dr. M.P. (Mehdi) Amineh
TABLE OF CONTENTS
ABSTRACT 5
ACKNOWLEDGEMENT 6
MAPS 7
LIST OF TABLES AND FIGURES 9
LIST OF ABBREVIATIONS 10
CHAPTER I:RESEARCH PROPOSAL 13
1.1 INTRODUCTION 13
1.2 LITERATURE REVIEW 15
1.3 THEORETICAL AND CONCEPTUAL FRAMEWORK 18
1.4 OUTLINE OF THE ARGUMENT AND HYPOTHESES 22
1.5 RESEARCH METHOD AND OPERATIONALIZATION 23
1.6 STRUCTURE OF THE WORK 24
CHAPTER II:CHINESE NOCS AND THE GOVERNMENT 27
2.1 INTRODUCTION 27
2.2 THE EMERGENCE OF NOCS AND INSTITUTIONAL REFORMS 27
2.3 CORPORATE GOVERNANCE OF CHINESE NOCS 31
2.4 OWNERSHIP AND CONTROL OF CHINESE NOCS 34
2.5 ASSESSING THE RELATIONSHIP BETWEEN THE CHINESE 37
GOVERNMENT AND NOCS:THE DEBATE
2.6 THE GOING ABROAD POLICY AND THE TRANSNATIONALIZATION 38 OF NOCS
CHAPTER III:KAZAKHSTAN:POWER STRUCTURES,SOCIETY AND 43
CHINESE INVESTMENTS IN THE ENERGY SECTOR
3.1 INTRODUCTION 43
3.2 KAZAKHSTAN:STATE,SOCIETY AND RESOURCE NATIONALISM 44
3.3 POLITICS AND MARKET IN KAZAKHSTAN:ELITE ANALYSIS 47
3.4 THE EMERGENCE OF ENERGY COOPERATION BETWEEN CHINA 53
AND KAZAKHSTAN:TRADE,INVESTMENT AND FINANCE
3.5 CONCLUSIONS 59
CHAPTER IV:THE TRANSNATIONALIZATION OF CHINA’S NATIONAL 61
OIL COMPANIES AND THE ROLE OF DOMESTIC ENERGY ELITES
4.1 INTRODUCTION 61
4.2 THE TRANSNATIONALIZATION OF CHINESE NATIONAL OIL COMPANIES 61
4.3 CHINA’S ENERGY ELITE NETWORK 64
4.4 THE CHINA DEVELOPMENT BANK, THE CHINA EXPORT-IMPORT 69
BANK AND THE DEVELOPMENT BANK OF KAZAKHSTAN: LOAN-FOR-OIL AND LOAN-FOR-GAS DEALS
4.5 CONCLUSIONS 77
CHAPTER V:GEOPOLITICAL AND GEOECONOMIC CONSEQUENCES 79
OF CHINESE ENERGY INVESTMENTS IN KAZAKHSTAN
5.1 INTRODUCTION 79
5.2 GEOPOLITICAL AND GEOECONOMIC CONSEQUENCES OF CHINESE FDI 80
5.3 POLITICAL RISK AND CHINESE FDI IN KAZAKHSTAN 86
5.4 CONCLUSIONS 88
CHAPTER VI:CONCLUSIONS 91
BIBLIOGRAPHY 95
BOOKS 95
ARTICLES,REPORTS AND BOOK CHAPTERS 96
INTERNET SOURCES 103
ABSTRACT
This thesis provides an analysis of Chinese national oil companies’ investment behavior in Kazakhstan, the facilitating role of ‘energy elites’ and the geopolitical and geoeconomic consequences of this investment. China’s economic growth has transformed the country from an energy producer to an energy consumer. The result of this soaring energy demand is growing energy supply vulnerability and caused a possible strategic liability. China has promulgated the strategy to enable its oil companies to increase their cross-border activities in order to gain access to foreign energy resources. This research approaches this process of transnationalization of national oil companies from a geoeconomic perspective. The preliminary findings of this research show that the transnationalization of Chinese national oil companies has increased their autonomy and leverage vis-à-vis the central government when it comes to cross-border activities. Furthermore, the Chinese and Kazakh ruling elites play a crucial role: the former in facilitating the “Going Out” of Chinese companies and the latter in enabling and embedding these companies’ FDI in Kazakhstan’s energy sector. The duality between the companies foreign and domestic operations combined with pivotal role of elites forms the focus of this research.
KEYWORDS
Chinese national oil companies – transnationalization – Kazakhstan – foreign direct investment – energy elite – CNPC – Sinopec – geopolitics – geoeconomics
ACKNOWLEDGEMENT
This research is the result of five months of intensive literature and data research on Chinese NOCs’ investments in Kazakhstan. I want to thanks Mehdi Amineh for his support and guidance during this process. His elective course Energy and Geopolitics in
Eurasia - the European Union and China has prompted me to continue my research on this
topic in his thesis course and his extensive knowledge on energy and geopolitics has provided me with new insights in global politics and energy issues. Furthermore, I want to thank Nana de Graaff for acting as my second reader. Her research on the ‘two faces’ of Chinese NOCs has proven a useful starting point for my research.
Guido van Linschoten June 25th 2015
MAPS
Map 1 Central Asian Oil and Gas Pipeline Network
Map 2 Kazakhstan
LIST OF TABLES AND FIGURES
TABLES
Table 2.1 Major share ownership of Chinese NOCs 34
Table 2.2 Chinese NOCs in numbers 40
Table 3.1 Kazakhstan’s main oil fields 56
Table 3.2 Chinese energy-related acquisitions in Kazakhstan 1997-2014 58
Table 4.1 Loan-for-oil and loan-for-gas deals since 2009 70
Table 4.2 Comparison of CITIC and the Sovereign Wealth Fund 75
Samruk-Kazyna 2013
Table 4.3 Comparison of CDB, the China Export-Import Bank and 77
DBK 2013
Table 5.1 Indicators of China’s energy security 82
FIGURES
Figure 2.1 The evolution of the Chinese energy industry 28
Figure 2.2 Current governance structure of Chinese NOCs 30
Figure 2.3 Sample NOC governance system as part of a principal-agent 33
framework
Figure 3.1 The composition of Kazakhstan’s exports in 2014 45
Figure 3.2 Kazakhstan elite analysis 52
Figure 3.3 Foreign direct investment in Kazakhstan, net inflows (% of GDP) 53
Figure 3.4 Kazakhstan-China bilateral trade 2010-2014 54
Figure 3.5 Kazakhstan’s oil exports to China 2010-2014 55
Figure 4.1 Foreign direct investments in Kazakhstan 2005-2014 62
Figure 4.2 China elite analysis 68
Figure 4.3 Sino-Kazakhstan loan-for-oil deal structure 73
LIST OF ABBREVIATIONS
ABC Agricultural Bank of China
AMG AktobeMunaiGas
ATF Almaty Trade-Finance Bank
BC Bank of China
bcm Billion cubic meter b/d Barrels per day
BG British Gas
BITs Bilateral Investment Treaties BOCOM Ban of Communications BTAs Bilateral Trade Agreements
CAIC Central Asian Investment Company CBL Commercial Banking Law
CCB China Construction Bank CDB China Development Bank CEIB China Export-Import Bank CEO Chief Executive Officer CIC China Investment Corporation
CITIC China International Trust and Investment Corporation CNOOC China National Offshore Oil Corporation
CNPC China National Petroleum Corporation COD Central Organization Department CPC Communist Party of China CPK Communist Party of Kazakhstan DBK Development Bank of Kazakhstan EIA Energy Information Administration ENI Ente Nazionale Idrocarburi
E&P Exploration and Production
ESPO East Siberia-Pacific Ocean Pipeline FDI Foreign Direct Investment
GDP Gross Domestic Product
GNPC Ghana National Petroleum Corporation HKSE Hong Kong Stock Exchange
IBC Interbank Consortium
ICBC Industrial and Commercial Bank of China IEA International Energy Agency
IOCs International Oil Companies IPE International Political Economy JSC Joint Stock Company
KBM Karazhanbasmunai
KDB Kazakhstan Development Bank
KMG KazMunaiGas
KNB Kazakhstan National Security Committee MLR Ministry of Land and Resources
MMG MangistauMunaiGas MNCs Multinational Corporations MOF Ministry of Finance
MOFA Minstry of Foreign Affairs MPI Ministry of Petroleum Industry mtoe Million tonnes of oil equivalent
NDRC National Development and Reform Commission NEA National Energy Administration
NEC National Energy Commission NOCs National Oil Companies NPL Non-Performing Loans NYSE New York Stock Exchange
OECD Organization for Economic Cooperation and Development P-A Principal-Agent
PBC People’s Bank of China PDVSA Petróleos de Venezuela
PSAs Production Sharing Agreements
RMB Renminbi
SAFE State Administration of Foreign Exchange
SASAC State-owned Assets Supervision and Administration Commission SCO Shanghai Cooperation Organization
SETC State Economic and Trade Commission Sinopec China Petroleum and Chemical Corporation
SK Sovereign Wealth Fund Samruk-Kazyna SNA Social Network Analysis
SOEs State-Owned Enterprises SPC State Planning Commission SPR Strategic Petroleum Reserve SSE Shanghai Stock Exchange
SSTC State Science and Technology Commission TBM Tarbagatay Munay
TCC Transnational Capitalist Class TNCs Transnational Companies
UMG UzenMunaiGas
USD United States Dollar
CHAPTER I:RESEARCH PROPOSAL
1.1INTRODUCTION
Kazakhstan’s vast amount of oil and gas resources makes it one of the key players in the Caspian Region.1 The country is landlocked by Russia, Uzbekistan, Kyrgyzstan,
Turkmenistan and China. Kazakhstan has had a good political, strategic and economic relationship with Russia, based on a shared cultural and historic background. However, president Nazarbayev declared in 1997 that the country would pursue a more open stance towards the region, well aware of Kazakhstan’s pivotal role in the regional energy market.2 This autonomous course has led to multiple energy related agreements being
signed with all the important geopolitical actors active in the Caspian region: Russia, China, the United States, the European Union and the Middle Eastern countries. “Newcomer” China has become a top priority for Kazakhstan to cooperate with, and economic cooperation between the two countries is well underway.
China’s ongoing economic growth causes a growing dependency on the import of energy. One of Beijing’s means to safeguard a stable and secure supply of energy is to diversify the origin and sources of this energy. A logical consequence is China’s wish to develop several land-based oil and gas pipelines which run from both the Caspian Region and Russia to China. Due to this great dependency China has become a major importer of oil and gas from Azerbaijan, Tajikistan, Uzbekistan, Turkmenistan and particularly Kazakhstan. Beijing has already invested vast amounts of capital in the Caspian region and has with its national oil companies (NOCs) a strong economic and political presence in the region. The estimated share of Chinese NOCs’ equity in Kazakhstan in 2010 was approximately 23% (Jiang & Sinton 2011: 81). This huge number is a clear example of China’s ambitions in the region, the investment behavior of the NOCs and the economic clout these actors already have in the region.
The focus of this research lies on the energy relations between China and Kazakhstan and especially on the Chinese national oil companies CNPC and Sinopec and their transnational activities, the role of the Chinese and Kazakh government, the transnational Kazakh energy sector, the investments of Chinese NOCs in Kazakhstan
1 The geographical term ‘Caspian Region’ refers to the five littoral states around the Caspian Sea: Russia,
Azerbaijan, Iran, Turkmenistan and Kazakhstan.
2 “Address of the President of the Republic of Kazakhstan, Nursultan Nazarbayev, to the People of
and the ‘energy elite’ in both China and Kazakhstan. A crucial factor in this research is the intertwinement between the Chinese government and the NOCs. Before we can understand the FDI of NOCs in Kazakhstan, we need to assess and map the ties that exist between the Chinese government and CNPC and Sinopec. This research makes use of the concept of an ‘energy elite’ to denote this relationship and to understand the business of Chinese NOCs in Kazakhstan. It examines China’s foreign energy policy towards Kazakhstan and focuses on the investment behavior of Chinese national oil companies (e.g. CNPC and Sinopec) in Kazakhstan in the period between 1997 and 2015. This delineation supports this research in the best way, because it covers the period from the outset of energy relations between the two countries to the current developments. The main social entities and actors that will be examined in this research are: the Chinese and Kazakh government; Chinese and Kazakh NOCs and the energy elite in both countries. Both social forces and societal pressure might be relevant for this research, but will be discussed to a lesser extent (though not ignored).
In order to research the objectives mentioned above, this work focuses on the question:
“What are the geopolitical and geoeconomic consequences of Chinese NOCs’ investments in Kazakhstan’s energy sector and how can we assess the role of both the Kazakh and Chinese ruling elite in enabling these investments?”
Three sub-questions support the answering of the main research question:
1. How can we understand the origin and nature of Chinese NOCs?
2. How can we assess the trade and investment interactions between China and Kazakhstan?
3. How can we assess and map the concept of a Chinese ‘energy elite’ and how can we understand the role of Chinese and Kazakh energy elites in enabling Chinese NOCs transnationalization and transnational investments?
4. What are the geopolitical and/or geoeconomic consequences of Chinese investments in Kazakhstan?
5. To what extent does the political instability in Kazakhstan pose a risk to Chinese investments and the country’s energy supply?
IRESEARCH PROPOSAL
The relevance of this research lies in the fact that it contributes to our understanding of the energy relations between China and Kazakhstan by not only assessing this relationship on the governmental level, but predominantly on the corporate level. This research aims to make us understand the forces that are in play in this relation between China and Kazakhstan, supported by an inquiry of the transnational elites that have ties with both the national oil companies and the government.
Furthermore, this research contributes to the existing literature on the transnationalization of Chinese national oil companies. This research will complement the literature by filling the gap that currently exists in the assessments of the NOCs. It will give a specific corporate analysis of the Chinese NOCs and focuses on the NOCs FDI behavior in Kazakhstan. By focusing on both their ties with the Chinese government and their growing autonomy from this same governmental structure this research complements the existing literature on Chinese NOCs. Using the case-study of the Kazakh-Chinese energy relations and linking the NOCs investments to the (geo)political and economic risks of an unstable political situation in Kazakhstan, this research also adds to a better understanding of the relativity of Chinese energy security and provides new insights in the concept of the transnationalization of Chinese NOCs.
Besides the scientific relevance of this research, it contributes to our understanding of the current energy related developments in the Caspian Region and between China and Kazakhstan. Furthermore, it places the current events in a larger framework of growing global interdependence and contributes to the debate on the challenges of energy security.
1.2LITERATURE REVIEW
The increasing investments of Chinese national oil companies (NOCs) in Kazakhstan are the result of the countries soaring energy demand and its wish to diversify in its energy sources. The Chinese government sees China’s growing dependence on the import of foreign oil as a potential area of strategic vulnerability. The importance of China’s energy security has therefore been highlighted by several scholars. Yergin (2006) has given an overview of global energy security and its geopolitical consequences and argues that these consequences are highly dependent on bilateral and multilateral cooperation between countries. China’s soaring energy demand has shifted the focus of the energy security debate from a more global perspective to China. Several studies have examined
the geopolitical consequences of China’s energy quest and take a more political and strategic rather than an economic approach to the energy security debate (Lee 2012; Chen 2011; Xuetang 2006; Leung 2011). Meanwhile, others take a more international political economy (IPE) approach to the problem of energy security (Matutinovic 2009; Jaffe & Lewis 2002) or a mainly political (i.e. policy) approach (Kong 2010; Andrews-Speed 2004).
This distinction between the geopolitical and geostrategic approach to China’s energy security on the one hand, and a more economic approach on the other hand is due to the role of the Chinese government and its state-owned enterprises (SOEs) that conduct their business abroad. The nature and goals of Chinese national oil companies is one of the main controversies in this debate. Numerous studies have paid attention to the complex interaction between the government and the NOCs (Jiang & Sinton 2011; Zhang 2012; Liao 2015; De Graaff 2014). However, the emphasis of these studies lies predominantly on the government-business relationship in China’s overseas energy quest and the majority of these studies takes a one-dimensional approach to the issue and overlooks the growing autonomy of both the government and the NOCs (Xu 1999). Both Jiang & Sinton (2011) and Chen (2008) take a more multidimensional approach to China’s energy security by examining and arguing the more autonomous path the NOCs are taking in the last decade. The loosening relationship between the NOCs and the Chinese government has also been examined by Andrews-Speed et al. (2000), which assesses the state reforms in the Chinese energy sector that led to more autonomy of the NOCs. This transformation of Chinese SOEs in what is often called the
transnationalization of Chinese NOCs, is the result of several institutional reforms and
causes the NOCs to increasingly behave as ‘regular’ international oil companies (IOCs) as Amineh and Guang (2014) and Cutler (2014) among others have shown.
China’s search for overseas energy in order to achieve a more secure energy supply has shifted its focus westwards to Central Eurasia. The Caspian Region is now one of China’s main points of interest to where it aims to direct its foreign direct investments (FDI). Several studies have examined the tightened energy relationship between China and this region and its challenges and opportunities (Cutler 2004; Cutler 2012; Cutler 2014; Andrews-Speed 2000). Cutler (1999) addresses the multilateral cooperation between interdependent energy actors in order to secure energy supplies and Xuetang (2006) too, has linked the problem of energy security to the Caspian Region.
IRESEARCH PROPOSAL
More relevant for this research and one of China’s major foci of its ‘Going Out’ Strategy (see Cheng Gong 2012) is China’s involvement in Kazakhstan.
Rousseau (2013) examines the Kazakh-Chinese energy relationship and the opportunities and challenges for both parties and assesses the development of this relation over time. Saurbek (2008) questions the nature of this relationship in his article “Kazakh-Chinese Energy Relations: Economic Pragmatism or Political Cooperation?”. An analysis of Kazakhstan is also been made in several other studies, whether it addresses the country’s energy relations with Russia (Domjan 2010), its economic and political history (Guo 2013), its policy on resource nationalism (Sarsenbayev 2011; Cutler 2012), or its energy exports to the region (Guliyev & Akhrarkhodjaeva 2009). Many scholars have identified the Chinese government and the NOCs on the one hand and the Kazakh government (governmental elite) and its institutions on the other hand as the main actors when examining the energy relations between the two countries. Yemelianova (2014) analyses Kazakhstan’s governmental elite and its political clout. Kendall-Taylor (2011) links this elite analysis to oil and the Caspian Region. In the case of China, several scholars have made such government analyses. Specific research on Chinese SOEs and ownership control has been done by Mattlin (2008) and an overarching view on oil and governance has been given by Victor et al. (2012) in their book Oil and Governance: State-Owned Enterprises and the World Energy Supply (Cambridge: Cambridge University Press). De Graaff (2012) too, has published an important work on corporate elites, state-owned oil companies and governance. Both Provaggi (2013) and Gallagher et al. (2012) analyzed the Chinese state banks and their finance methods that play an important role in China’s energy relationship with Kazakhstan. These state-backed financial deals have also been assessed by Evans (2006). However, many - and for this research more relevant - studies linked the Chinese government and its SOEs to the national oil companies (Downs 2008; Downs 2010; Jaffe & Chen 2007; Jiang & Sinton 2011; Leis et al. 2012) and their investment behavior in Kazakhstan (Cutler 2014; Deng 2007; O’Neill 2014; Xu 1999; Zhu 2013).
This research contributes to the existing literature on the transnationalization of Chinese national oil companies. This research will complement the literature by filling the gap that currently exists in the assessments of the NOCs. This research will give a specific corporate analysis of the Chinese NOCs and focuses on the NOCs FDI behavior in Kazakhstan. By focusing on both their ties with the Chinese government and their growing autonomy from this same governmental structure this research
complements the existing literature on Chinese NOCs. Using the case-study of the Kazakh-Chinese energy relations and linking the NOCs investments to the (geo)political and economic risks of an unstable political situation in Kazakhstan, this research also adds to a better understanding of the relativity of Chinese energy security and provides new insights in the concept of the transnationalization of Chinese NOCs.
1.3THEORETICAL AND CONCEPTUAL FRAMEWORK
This research makes use of several theoretical and conceptual frameworks to add to a better understanding of the topic. This section outlines these theories and concepts and distinguishes the links between them. For each theory and concept, a short overview of the current debate is given. Besides an outline of the current debate, this part identifies the most important indicators for each theory and concept.
Energy Scarcity Model
The energy scarcity model, as proposed by Amineh and Houweling (2007), contributes to a better understanding of the growing interdependence between energy producing and energy consuming countries. The model distinguishes three types of scarcity.
Demand-induced scarcity originates as the result of three factors (population growth, rising per capita income and technological change). All three factors lead to an increase in per capita energy demand causing a decreased availability of natural resources (Amineh & Houweling 2007: 374-375). Supply-induced scarcity is caused by ‘the dwindling of stock’. This form of scarcity interacts with demand-induced scarcity in the way that the growing demand for natural resources might lead to an increase in price volatility as ‘awareness spreads that stocks are dwindling’ (Amineh & Houweling 2007: 375). The third type of scarcity is structural scarcity. It is supply-induced and caused by a major power withholding natural resources from the market.
China suffers from demand-induced scarcity. The energy scarcity model forms a starting point for this research from which China’s foreign energy quest can be understood and through which Chinese NOCs’ investment behavior in Kazakhstan can be understood. Important variables that can explain this type of energy scarcity are GDP growth, population growth and technological change. Furthermore, the transnational activities of Chinese NOCs and the scope of Chinese NOCs’ FDI in the Kazakh energy
IRESEARCH PROPOSAL
sector are useful indicators for the energy scarcity model and especially fit to examine and assess the energy relations between China and Kazakhstan.
Social Network Analysis (SNA)
In order to understand the relationship between the Chinese NOCs, the Chinese government, the Kazakh NOCs and the Kazakh government, we have to examine the corporate and political elites involved. Yemelianova (2014) analyses Kazakhstan’s governmental elite and its political clout. Kendall-Taylor (2011) links this elite analysis to oil and the Caspian Region. In the case of China, several scholars have made such government analyses. Specific research on Chinese SOEs and ownership control has been done by Mattlin (2008) and an overarching view on oil and governance has been given by Victor et al. (2012) in their book Oil and Governance: State-Owned Enterprises and the
World Energy Supply (Cambridge: Cambridge University Press). De Graaff (2012) has
published an important work on corporate elites, state-owned oil companies and governance and further expands on the topic of political and corporate elites in her 2014 article “Global Networks and the Two Faces of Chinese National Oil Companies”. In this case, she has used the social network analysis (SNA) (see Scott 2012; Carrington, Scott & Wasserman 2005) in order to assess the links that exist between the Chinese elite and the national oil companies. The author argues that “the basic premise of SNA is that it looks at the relations between actors instead of comparing their individual attributes (De Graaff 2014: 547). For this research, the conceptual framework of SNA is very useful to examine and estimate the interaction and interdependence between the political and corporate spheres in both China and Kazakhstan and to make an assessment of the state and corporate affiliations of the Chinese and Kazakh elites associated with the energy industry and Chinese and Kazakh NOCs. Indicators used in this model are the people that are part of Chinese and Kazakh energy elites and the transnational corporate network they have established. This research expands on the work of De Graaff (2014) by investigating and mapping the transnational ties between energy elites with a specific focus on the interaction between China and Kazakhstan.
The Transnationalization of National Oil Companies
Transnational actors have increasingly left their mark on global (geo)politics. The debate on the impact of multinational (MNCs) and transnational corporations (TNCs) has predominantly taken place in the context of the discussions about globalization and internationalization (Risse 2013: 431). The concept of globalization is highly contested in the literature, but there exists some form of agreement on the influence of TNCs on global politics (Risse 2013: 432). Zürn (2013: 410) states that the ‘transnationalization of
governance refers to a process in which transnational nonstate actors develop political
regulations and activities without being formally authorized by states’ (see also Djelic & Sahlin-Andersson 2009). This is certainly the case for Chinese national oil companies.
The increasing influence of national oil companies can be understood in a period of what scholars have called transnationalization. This phenomenon implies an increase in cross-border activities and partnerships of NOCs and a loosening relationship with the national government. De Graaff (2014: 547) defines the concept of transnationalization with regard to national oil companies as ‘the extent to which they (NOCs) engage in cross-border alliances and/or involving private partners’. This transnationalization or
internationalization connects to Mercille’s (2008) ‘logics of power’ and the work of David
Harvey on the Geopolitics of Capitalism (Harvey 1985) and on The Spaces of Capital (Harvey 2001a). Both authors state that capitalism’s tendency of overaccumulation of capital results in the geographical expansion of capital (Mercille 2008: 576; Harvey 2005: 25-30). The geographical expansion of capital poses new challenges and opportunities to the logics of capitalism and is referred to by Mercille (2008) as the geoeconomic logic. The transnationalization of national oil companies is can be understood in the same tradition of capital overaccumulation. The ‘spatial fix’ (Harvey 2005) resolves some of the problems concerned with this geographical expansion. A clear consequence of this geographical expansion can be seen in the vast increase of foreign direct investment (see O’Brien & Williams 2010: 187-189).
De Graaff (2011: 263) understands this concept as being a process that cuts through the divide that exists between the public and private spheres and where there is at least one non-state actor involved. The loosening relationship between the NOCs and the Chinese government has also been examined in an article by Andrews-Speed et al. (2000), which assesses the state reforms in the Chinese energy sector that led to more autonomy of the NOCs. The transformation of Chinese state-owned enterprises (SOEs)
IRESEARCH PROPOSAL
in what is often called the transnationalization of Chinese NOCs, is the result of several institutional reforms and causes the NOCs to increasingly behave as ‘regular’ international oil companies (IOCs) as Amineh and Guang (2014) and Cutler (2014) among others have shown.
In this research, the concept of transnationalization will be used as a theoretical framework through which we can understand and assess the characteristics of the Chinese NOCs and their relationship with the Chinese government.
Critical Geopolitics
‘Critical geopolitics intends to understand world politics in terms of the ways in which elites and publics actively construct the spaces of political action that are then the medium for the policies of states and other actors’ (Agnew 2010: 569). In this article, the author critically assesses geopolitics and the way we consider the ‘rise of China’ in the global order and argues that China’s rise is far different from the geopolitical rise of other nations in the way that it doesn’t follow a linear narrative. It ‘cannot be seen as just a process of “regular” hegemonic succession or as bringing a totally new script to the table’ (Agnew 2010: 570).
Critical geopolitics doesn’t start from a fixed normative position like realism or liberalism does. Instead, critical geopolitics tries to delegitimize classic geopolitics by placing it in a more historical framework and demonstrates the contradictory nature of classic geopolitics. Critical geopolitics is one of the postmodern theories of international relations and is rooted in the poststructuralist tradition. It rejects the causality classic geopolitics sees between geography and global politics and questions the borders this theory draws between both territories and identities. By rejecting the supposed objectivity of classic geopolitics, critical geopolitics shows the intertwinement between geopolitics, the state structure and conflict.
Agnew argues in this article that the rise of China is not comparable to the rise of other hegemons in the past. Furthermore, the concept of a ‘rise’ of China, is predominantly created by (mostly Western) outsiders. The country does not follow the steps of the classic linear narrative as Agnew points out in his article. He identifies four elements of the linear narrative. The first element is the ‘vision that the world exists for powerful actors to survey and subdue. A second element is the representation of different parts of the world as following a linear path from backwardness to modernity.
Third, the singular map of the world is the political map of a world divided into putative nation-states. And finally, states are in unremitting competition with one another for primacy. China is not following this linear path. This is what Agnew calls ‘Chinese particularity’. He argues that China’s rapid economic development is predominantly the result of globalization instead of being the product of national development. The linkage of export-oriented sectors to the global economy fueled the national economy and attracted huge amounts of FDI (Agnew 2010: 578).
Another proponent of the school of radical geopolitics is Mercille. In his 2008 article, he expands on the work of Harvey (2001a; 2003) on the ‘logics of power’ and adds the new concept of ‘geoeconomic logic’. This logic can bee understood as overaccumulation leading to capital devaluation and “for this reason, capitalism has a tendency to expand geographically, through opening up new markets, expanded trade, or investment of surplus capital to build production facilities in new places” (Mercille 2008: 576). This geoeconomic logic is but one focus of radical or critical geopolitics, though can function as a relevant framework through which we can understand the Chinese NOCs overseas expansion and activities in Kazakhstan. This research will mainly make us of the theoretical framework shaped by Mercille (2008) and makes use of the work of Agnew (2010) to introduce the theory of critical geopolitics.
1.4OUTLINE OF THE ARGUMENT AND HYPOTHESES
This work argues that the FDI of Chinese NOCs, facilitated by a transnational energy elite, has far-reaching geopolitical, and mainly geoeconomic consequences for both China and Kazakhstan and that these Chinese cross-border investments in the Kazakh energy industry have a high risk factor. The research question “What are the geopolitical and geoeconomic consequences of Chinese NOCs’ investments in Kazakhstan’s energy sector and how can we assess the role of both the Kazakh and Chinese ruling elite in enabling these investments” contains two variables. The independent variable in this case is the Chinese NOCs’ energy investments in Kazakhstan. The dependent variable is the geopolitical and geoeconomic consequences of these investments. It is expected that the scope of the consequences is dependent on the investments due to the transnationalization of the Chinese NOCs. Therefore:
IRESEARCH PROPOSAL
Hypothesis 1: The increased transnational activities of Chinese NOCs have transformed these
companies into IOCs that are increasingly autonomous of, though still backed by the Chinese government.
Then, the transnationalization of Chinese NOCs, understood through the geoeconomic logic, has created a transnational network of political and corporate elites –energy elites- that facilitates the flows of FDI running from China to Kazakhstan in order to gain geoeconomic and geopolitical influence. Thus:
Hypothesis 2: The emergence of a transnational network of energy elites has facilitated a rapid
expansion of Chinese NOCs direct investments in Kazakhstan.
Then, the Chinese investment strategy and its quest for foreign equity oil in Kazakhstan actively challenges other players in the region and therefore has created a new reality in the region. Thus:
Hypothesis 3: Chinese NOCs’ investments in Kazakhstan have created a new geopolitical and
geoeconomic reality in the Caspian Region
The last step assesses the relationship between Chinese and Kazakh corporate and political elites and examines to what extent the incumbent regime in Kazakhstan poses a political and economic risk for the energy relations between the two countries. This can have negative consequences for China’s energy security and therefore for its NOCs in Kazakhstan. Following:
Hypothesis 4: Political and economic risks are a result of the unstable situation in Kazakhstan and
therefore negatively affect both China’s energy supply from and its investments in Kazakhstan.
1.5RESEARCH METHOD AND OPERATIONALIZATION
This research is partly based on secondary data to examine the Chinese energy relation with Kazakhstan. The most important scholarly contributions to relevant debates are being used to make the argument. At the moment, I have already collected approximately 90 sources through Google Scholar, UvA Digital Library, Amazon.com and other
sources. I also have made use of some primary sources from the Chinese government (White Papers) and the Kazakh government.
For the quantitative analysis of this research I have found a few datasets containing both energy data in general as specific energy data for Kazakhstan and China. A short outline of the sources I have found: UN Comtrade Database (2015), World Heritage Foundation (2014), Kazakhstan Statistical Report (IEA 2014), Report on China (EIA 2014), Report on Kazakhstan (EIA 2014a). I also make use of specific company data from the annual reports of CNPC, CNOOC and Sinopec: “CNOOC Annual Report 2013” (CNOOC 2013). “CNPC Annual Report 2013”(CNPC 2013), “CNPC in Kazakhstan” (CNPC 2014). “Sinopec Annual Report 2013” (Sinopec 2013) and “Sinopec Corporation Q3 2014 Results Announcement” (Sinopec 2014).
In my research I want to analyze the geopolitical and geoeconomic consequences of the investment activities of CNPC and Sinopec in Kazakhstan. To assess these consequences I make use of a variety of concepts and examine different statistics, agreements and policy documents. This research begins with assessing the diplomatic ties between China and Kazakhstan. Official and unofficial cooperation, membership in international organizations (e.g. Shanghai Cooperation Organization) and bilateral treaties are the key aspects under study.
Next, this research assesses and maps the energy elite of both China and Kazakhstan and tries to examine the intertwinement between those elites. Making use of policy documents of the Chinese and Kazakh government and information directly from CNPC, Sinopec and KazMunaiGaz, this work tries to map this energy elite. Having done this, this research turns to analyzing the risks of NOCs investments in Kazakhstan. Making use of contracts, FDI data from both countries and other statistics, this research aims at giving a solid risk analysis of these investments.
1.6STRUCTURE OF THE WORK
This research will examine China’s energy policy relation with Kazakhstan and the investment behavior of Chinese national oil companies in Kazakhstan in the period between 1997 and 2015. The outline of this research is as follows: chapter II focuses on the relation between the Chinese NOCs and the central government. This chapter assesses the governance structures of national oil companies, examines their ownership
IRESEARCH PROPOSAL
and control structures and gives an insight in the current academic debate on the intertwinement between NOCs and the Chinese government. It also analyzes upon the development of China’s foreign energy policy, often called “energy diplomacy” (see Cheng 2008: 314), and the emergence and “transnationalization” of the national oil companies. Chapter III examines the political regime and energy elite in Kazakhstan and touches upon the country’s resource nationalism. Further, it elaborates on the emergence of the ties between China and Kazakhstan and the role that the NOCs’ foreign direct investment (FDI) plays in securing natural resources and gaining geoeconomic influence in the region. Chapter IV focuses on the political and economic elites in China and analyzes the loan-for-oil and loan-for-gas deals signed with Kazakhstan. This section maps the role of these elites and analyzes in what way they facilitated the current investments in Kazakhstan. In chapter V, this research tries to link the transnationalization of Chinese NOCs and the emergence of a transnational energy elite network to a political risk analysis of Chinese investment in Kazakhstan and assesses the geopolitical and geoeconomic consequences of Chinese NOCs’ investments in Kazakhstan. Finally, the concluding chapter VI reverts to the hypotheses and provides the reader with a short summary of the main arguments and findings.
CHAPTER II:CHINESE NOCS AND THE GOVERNMENT
2.1INTRODUCTION
In 1993, China became a net importer of oil (Jiang & Sinton 2011: 10; Chen 2008: 80). Since then, the country faces the challenge of maintaining its security of energy supply for both the short and long term. In order to maintain the country’s security of energy supply and facilitate the exploration and production of new and alternative energy sources, China has implemented several institutional and administrative reforms that radically changed both the Chinese government and its petroleum governance. These institutional and economic reforms have facilitated the growth and predominance of Chinese NOCs in the last decade and serve as a clear example of the country’s ability, motivation and strategy to seek a more active role in the global energy industry. The central questions in this chapter are: In what way can we understand the relationship between NOCs and the Chinese government, what is China’s energy policy direction, and how can we explain the importance of the Kazakh energy industry for China? This chapter’s first part aims at assessing China’s institutional reforms and its policy response to the challenge of maintaining the security of energy supply. The first part focuses on the institutional reforms in China that have shaped the current governance structure of NOCs. Next, it analyzes the ownership and control structures of these corporations. The debate on the intertwinement between NOCs and the government and the NOCs transnationalization are touched upon in parts five and six.
2.2THE EMERGENCE OF NOCS AND INSTITUTIONAL REFORMS
The connection between Chinese national oil companies and the government is a complex one. Although these companies seem highly successful in the way they conduct business, the NOCs have experienced a lot of controversy over the years. Critics argue that as internationally listed companies (like other IOCs) they ought to be commercial enterprises with a focus on profitability, though both inside and outside China the NOCs face the critic of enjoying a privileged position in the energy market, because the Chinese government supports them. These privileges can be traced back to the emergence and nature of the NOCs in China.
CNOOC was the first Chinese NOC to emerge and was incorporated in 1982 as a company under the Ministry of Petroleum Industry (MPI). This NOC was authorized by the State Council to take control over all exploitation of oil and gas offshore China and is primarily an upstream (exploration and production) company. Sinopec followed in 1983 and was established from the downstream (refining and marketing) assets of the MPI and the Ministry of Chemical Industry. In 1988, The Ministry of Energy was established and all the industries that previously fell under the jurisdiction of the former Ministries of Coal, Petroleum, and Nuclear Energy and the Ministry of Water Resources and Power became SOEs, including CNPC (Liao 2015: 48). CNPC was formed from the upstream assets of the MPI (Downs 2010: 74).
Figure 2.1 The evolution of the Chinese energy industry
Souurce: Based on Jiang (2012: 381). Graph made by author.
In the mid-1990s, the State Planning Commission (SPC) was the most important government institution and responsible for energy policy. The SPC reported directly to the State Council and stood well above the two other (relatively subordinate) institutions:
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the State Science and Technology Commission (SSTC) and the State Economic and Trade Commission (SETC). The main energy industries each had their own major institution. CNPC stood at the head of the petroleum exploration and production (E&P); Sinopec dominated oil refining and distribution and there were the Ministry of Electric Power and the Ministry of Coal Industries.
The 1998 reforms envisaged three major adjustments to the structure of China’s energy institutions. The first change was that the management of the NOCs was no longer the hands of the government, but was assigned to the oil companies themselves. Second, the SETC evolved from an unimportant and inept government institution to a significant player in the energy industry and the former CEO of Sinopec became its new chairman. The third adjustment was the creation of the Ministry of Land and Resources (MLR) of which CNPC’s former CEO became chairman (Andrews-Speed et al. 2000: 11-13). Here we can already see the intertwinement between business and politics in China. China’s successful economic and institutional reforms economy and its institutions were made possible. An oligopolistic structure was created in 1998. In this structure, CNPC, Sinopec and CNOOC would partake in limited competition in order to prepare the NOCs for the international oil market and improve the companies’ efficiency without losing any of the sector’s profitability (Taylor 2014).
The 2003 reforms reassured the government’s control over the NOCs. There were no longer separate Ministries with their own jurisdiction and responsibilities and the authority of the State-Council increased (Mattlin 2008: 6-12). Liao (2015: 51) agrees by stating that there is no separation at all between the State Council and the NOCs: ‘as the majority of their shares was owned by the Chinese government, the NOCs did not become commercial companies through international listing. The NOCs were asked to share a responsibility to ensure China’s stable oil supply, and in return, the government provided protection to NOCs from facing competitions from private companies via laws and regulations (…).’ Also in 2003, just after the public listings of CNPC, Sinopec and CNOOC on the stock exchanges, the State Assets Supervision and Administration Commission (SASAC) and the National Development and Reform Commission (NDRC) were established to unify the state’s ownership representation.3
3 PetroChina was listed on the New York and Hong Kong stock exchanges in April 2000; Sinopec Ltd. was
listed on the New York, Hong Kong and London exchanges in October 2000; CNOOC Ltd. was listed on the New York and Hong Kong exchanges in February 2001.
The NDRC was from that time responsible for the approval of both foreign and domestic investments made by NOCs.4 SASAC would from that moment be handling
and supervising all the SOEs’ assets and would be reporting directly to the State-Council.5 SASAC is the formal owner of all NOCs (Jiang & Sinton 2011: 25).
Figure 2.2 CurrentGovernance structure of Chinese NOCs
Notes: NEC = National Energy Commission; SASAC = State Assets Supervision and Administration Commission; MOF = Ministry of Finance; MOFA = Ministry of Foreign Affairs; NDRC = National Development and Reform Commission; NEA = National Energy Administration; CBRC = China Banking Regulatory Commission; Chinese Banks = CDB and CEIB.
Sources: IEA, (Jiang & Sinton 2011: 25).
SASAC ‘indicates that the assets of SOEs amount to over 66 percent of all assets in the country, up from 60 percent in 2003’ (Lee 2012: 80). This increase in assets underlines the Chinese government’s ambition to reassure its grip on the SOEs and the NOCs in particular. After SASAC, the National Energy Commission (NEC) and the National Energy Administration were established in 2008 and 2010 respectively. The former would function as a high-level discussion and coordination body without any specific functions. The latter would function as a vice-ministerial component of the NDRC. This administration has more capability than its predecessor, but it still lacks the
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authority for ultimate decision-making (Jiang 2012: 400). The Chinese government established these institutions to ‘provide a favorable environment for foreign investment and protect the legitimate rights and interests of investors (…).’ Their main responsibilities are the development of energy strategies, reform advice, management of the energy sector and putting forward strategies that promote international cooperation and the exploration of new energy (Zhu 2013: 4).
2.3CORPORATE GOVERNANCE OF CHINESE NOCS
The period after 1993 has been crucial for the development of the Chinese NOCs CNPC, Sinopec and CNOOC. The Chinese government, not wanting a competitive domestic energy industry and having the ambition to overcome both the risk of market and regulatory failure, aimed at developing a co-governance structure for its energy industry. In this way, the petroleum policymaking process in China became not only more decentralized but also progressively pluralized (Kong 2009: 2). Several rounds of reforms enabled these national oil companies to evolve into autonomous and fully integrated oil companies with a growing independence from the Chinese government and an increasingly autonomous corporate structure. The NOCs were given the responsibility to regulate their own market. Nevertheless, there still exist strong ties between the NOCs’ corporate elite and China’s political elite. This interdependence between the NOCs and the government has caused the situation that the NOCs became both market participant and market regulator. A co-governance structure of China’s energy industry emerged that involved ‘the participation of both the central governments and the NOCs in the era of reform and globalization’ (Kong 2009: 2-6).
This co-governance structure is the result of a decade-long reform process that took place in Chinese politics. This process resulted in the decentralization of energy production, pricing and administration and seems to be based on an agreement between the NOCs and the government that entails two components. On the one hand, the NOCs agree to deliver a stable amount of oil at a price level set by the government. In return, the government grants subsidies to the NOCs to cover possible losses. On the other hand, the executives of the NOCs agree to implement policies that enhance the value of these SOEs and guarantee a stable flow of oil in order to maintain the country’s security of energy supply. In return, these executives are being promoted both along the corporate and political ladder (Kong 2009: 27; Jiang 2012: 395-401).
The interdependence and interaction between the Chinese government in Beijing and the NOCs decide the effectiveness of the country’s energy governance. However, there are three factors that impede these interactions. First, the government and the NOCs have different embedded priorities and interests, and Beijing is not always fully aware of the NOCs interests and the role they should have in the Chinese energy industry. Second, the Chinese government is not able to actively monitor the NOCs’ behavior or hold them fully accountable for their actions. Finally, the government in Beijing often gives the national oil companies too much or too little distinction (Kong 2009: 6).
It was only since the early 2000s that the Chinese government envisaged a increasing gap between supply and demand and has since that moment taken the lead in supporting state firms like the national oil companies to find more energy resources and expand their share of foreign equity oil (Chen 2008: 81).6 All Chinese NOCs use this
tactic of state-backed “oil diplomacy” and have rapidly expanded their business abroad. Oil diplomacy refers to a state-backed strategy to gain more secure national control over overseas oil and gas supplies and a diversification of imports. CNPC recorded a 12.9% increase in its share of overseas equity oil and gas production in 2013. Its equity share of overseas oil and gas output amounted to 59.2 million tonnes of oil equivalent (mtoe). That is 1.18 mb/d (Reuters 2014). Sinopec’s share of overseas equity oil for the year 2013 amounted to 21.7 million tonnes and increased investments resulted in a production of 36.36 million tonnes by the third quarter of 2014, a growth of 107.3 % compared with 2013.7 China National Offshore Oil Corporation (CNOOC) recorded an
overseas oil production of 27.46 in 2013.8 These increased investments and the on going
procurement of foreign equity oil is made possible by the Chinese government’s oil diplomacy and could be facilitated due to structural reforms of both the Chinese economy and its institutions.
After China had become a net importer of oil in 1993, the country started a second phase of economic and institutional reforms in order to open up their economy to the world (Jiang & Sinton 2011: 10). This ‘Going Out’ strategy resulted in fundamental changes in the institutions that were concerned with the supervision of NOCs, the appointment of its executives and oil pricing mechanisms. The energy ministries
6 The term “equity oil” refers to ‘a practice used by petroleum firms to participate in foreign oil or gas
projects in the form of share of stocks or investments; in return, they can annually obtain a certain portion of oil and gas produced from those projects’ (Chen 2008: 83).
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disappeared and several independent government bodies were installed to facilitate the growth and autonomy of some of its most important enterprises. To understand the relationship between the Chinese government and its NOCs, the principal-agent (P-A) framework or theory is a useful starting point. This framework refers to the arrangement between an agent -in this case NOCs- and a principal –in this case the Chinese government. The agent is legally appointed by the principal and performs the tasks given to him (Liao 2015: 46-47).
Figure 2.3 Sample NOC governance system as part of a principal-agent framework
Source: Hults (2012: 69)
Figure 2.3 shows a simplistic model of the principal-agent relationship. Despite the fact that this model suggests a clear separation between the NOC and the state, which is clearly not the case in China, it can function as a framework to understand the interaction between the state and the NOCs. As both figure 2.1. and figure 2.2 show us, we can identify multiple principals that are part of NOC governance in China. In general, these principals often have different incentives and objectives, though this is not the case for China, where there is a vertical governance structure in which different principals are subordinate to the State Council (see figure 2.2). All the NOC governance bodies thus advocate the state objectives of making profit, creating employment and maintaining energy security (Hults 2012: 67; Leung 2011: 1332). The NOCs, in turn, have somewhat
different incentives than the state. They do want to make profit, but have slightly different views on employment and energy security. This discrepancy will increase when NOCs become more autonomous from the state. The Chinese government uses different tools in order to keep control over the oil companies. The state uses ex ante procedures to influence or mandate the NOCs’ decision-making process (contracts with partners, employee salaries, appointment of directors, etc.) and ex post procedures to monitor these decisions (mandatory annual reports, audits, investigations, etc.). These procedures are necessary to overcome the discrepancy between state and NOC incentives. (Hults 2012: 66-68). Despite the fact that the analytical framework of P-A is not able to fully explain the relationship between the Chinese government and NOCs, it partly explains this complex relation. The next section will elaborate on the ownership and control of Chinese NOCs to add to the understanding of this relation.
2.4OWNERSHIP AND CONTROL OF CHINESE NOCS
To further examine the relationship between the NOCs and the government, it is important to assess the ownership structure of the oil companies and to address the question: who actually controls these NOCs? Like IOCs, the Chinese NOCs all have publicly listed subsidiaries, but a majority of the shares are still in hands of the state. As table 2.1 shows us, the majority of the shares of the three Chinese NOCs’ listed companies are in the hands of the NOCs, which are then owned by SASAC and thus the Chinese government. However, ownership does not per se translate into control. In the case of Chinese NOCs, with majority ownership does come the ability to appoint members of the board of directors and the management. The control of these companies thus goes beyond ownership and has to be examined from a slightly different angle.
Table 2.1 Major share ownership of Chinese NOCs
Company Major Shareholder Percentage of Shares
Owned Share Type
Sinopec Corp. Sinopec Group 75.84 State-owned
PetroChina CNPC Group 86.35 State-owned
CNOOC Ltd CNOOC 64.41 State-owned
Sources: Table derived from Taylor (2014), with updated figures from company annual reports: CNOOC
(2013). “CNOOC Annual Report 2013”; CNPC (2013). “CNPC Annual Report 2013”; Sinopec (2014). “Sinopec Annual Report 2014”.
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The control of the state over the NOCs can explained through four dynamics. First, there is SASAC, the State Assets Supervision and Administration Commission. This institution has in the past been a relatively passive government body. For example: SASAC did not collect any dividend from the NOCs until 2007, when the government reinstated these dividend collections (Downs 2010: 75). Now, the NOCs are required to pay 15 percent of their profits to the state, up from the current dividend of 10 percent (Downs 2010: 92; Financial Times 2010). Along with this development, SASAC has taken a more active role in controlling the NOCs, for instance with linking the salaries of the managers of the companies to their performances. SASAC does not have the authority to appoint the top leaders of the NOCs, but has the power to choose their top managers. SASAC functions as a watchdog of all the assets belonging to the SOEs, including three NOCs. “It has the final say over any modification to the state assets of any of the three oil companies, their holding subsidiaries, and companies with their equity” (Kong 2009: 26).
A second instrument of control of the state over the oil companies is the power to appoint, promote and dismiss the top managers and leaders of the firms. Part of this power lies with SASAC, but the predominant institution in management appointments is the Organization Department of the Communist Party. This body affects not only the states’ internal mechanisms (appointment and dismissal of party committees and party secretaries), but also the NOCs’ personnel management, decision-making and transparency (Yeo 2009: 1021-1022; McNally 2002: 93). This power does not only have national consequences, but can influence the international course of the company, since all three NOCs are listed on international stock exchanges and an appointed manager of one of the parent companies simultaneously serves on the board of directors of one of its internationally listed subsidiaries (Downs 2010: 76).
Third, the state has control over companies through the approval of investments. All domestic investments in oil refineries, LNG terminals, oil and gas fields etc. require the approval of the state. Furthermore, the NDRC has to approve all foreign investments exceeding $30 million and all investments above $200 million have to be approved by the State Council. With this authority, the state is able to control and shape the NOCs’ domestic and global strategies (Downs 2010: 74-78 and see Taylor 2014: 13-14)
A final instrument of control of the state over the NOCs is the provision of cheap credit for the oil companies. Through state-owned banks as the China Export and
Import Bank (CEIB) and the China Development Bank (CDB), the state can provide cheap loans to the NOCs that can function as leverage (Jiang & Sinton 2014: 20-23). Thanks to the NOCs’ strong financial positions however, this instrument has not been used often. Nevertheless, the Chinese government has provided huge subsidies to some the NOCs in the past to compensate for their losses due to a high degree of inefficiency (Kong 2009: 24) and because they bought oil on the international markets and had to sell petrochemical products made from this same oil for lower, government capped prices in China (Collins & Erickson 2012). Since 2004, Sinopec and CNPC have received nearly 126RMB billion of government subsidies and hence forced some private refineries and retailers out of the market (Xinjing Bao 2014).
The Chinese NOCs themselves do have some influence vis-à-vis the state. These companies have some autonomy and are not merely arms of the government. Their first instrument of power is the lack of strong government institutions. The three rounds of reforms have created an institutional situation that is best described as having ‘too many cooks in the kitchen’. The decentralization and liberalization of China’s energy sector have caused a fragmented institutional framework with government bodies that are often politically weaker than the NOCs itself (Taylor 2012: 70-74). The absence of a single Ministry of Energy and the overlap of institutional jurisdictions caused the NOCs to gain leverage vis-à-vis the government and become more autonomous. Although the government’s has tightened its grip on the oil companies since the 2003 reforms, there are still several loopholes for the NOCs.
A second instrument of corporate power is the huge profits the NOCs have earned over the years. For example, among SOEs, CNPC, Sinopec and CNOOC accounted for 24.1 percent of total sales revenue, 40 percent of taxes collected and 23.5 percent of profits (Downs 2010: 77). In 2007, CNPC alone contributed RMB 198.5 billion, comprising 51 percent of total profits (Jiang 2012: 406). Their great share in income revenue for the state was mainly due to a rapidly increasing oil price: the international oil price increased from US$28/barrel in 2003 to US$138/barrel in 2008 (BP 2013; Liao 2015: 53).
Finally, the NOCs have gained more autonomy and power due to the international listing of its subsidiaries between 2000-2001. With their listings on the international stock exchanges of Hong Kong (HKSE), New York (NYSE), Shanghai (SSE), these companies are compelled to abide by the rules and laws of the host country. Not only the stock exchanges itself, but also other international supervisors exert some
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influence over the NOCs’ listed subsidiaries. A consequence is that Chinese NOCs have to take international shareholders and international laws into account, which puts them in a position that is increasingly more autonomous from the state (Downs 2010: 74-78).
In the end, it is a unique combination of majority share ownership, the system of
nomenklatura, support from state-owned banks and other factors that enable the Chinese
government to let the NOCs follow a path that is for a big part outlined by the government, despite the fact that all three NOCs are publicly listed on international stock exchanges. However, with the decentralization of the NOC governance structure, the state has granted the NOCs more autonomy. Therefore, the debate on how to assess the ownership and character of these companies is still ongoing. The next part will give a short overview of this debate.
2.5ASSESSING THE RELATIONSHIP BETWEEN THE CHINESE GOVERNMENT AND NOCS:
THE DEBATE
We can roughly distinguish three arguments in this debate. First, there is the argument that Chinese NOCs are both state-owned and state-led: scholars supporting this argument state that there is no such thing as company autonomy for these NOCs and that the Chinese government pulls the strings through institutions as SASAC and via the system of the appointment of members of the board of directors of all three NOCs (see Mattlin 2008; Liao 2015; Taylor 2014; Inkpen & Moffett 2011).
A second, more broad-based, argument is that of Chinese NOCs being state-invested, not state-led. Due to the transnationalization or internationalization of the NOCs, their priorities and interests have shifted from serving a predominantly domestic (i.e. government) agenda to a more autonomous and commercial agenda. In this line of thought we can examine and explain the overseas activities of Chinese NOCs, for instance in Kazakhstan. The NOCs zealous expansion overseas, backed-up by the diplomatic efforts of the Chinese government supports the claim that the NOCs are neither completely state-led nor fully autonomous (see Jiang & Sinton 2011; Chen 2008; De Graaff 2014; Jaffe & Lewis 2002)
A third, more hypothetical, argument is that of Chinese NOCs being almost entirely autonomous from the government. Obviously, this is not the case today, though some scholars make the argument that Chinese NOCs are clearly moving towards (full) autonomy. Mostly, these scholars are proponents of the argument that NOCs are
