Chinese energy supply security, the cases of Kazakhstan and Turkmenistan (2006-2016)

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Graduate school of Social Sciences

Chinese energy supply security, the cases of Kazakhstan and Turkmenistan

(2006-2016)

Author: Melanie van Driel Student number: 10443827 Thesis type: Master Thesis

Programme: The Political Economy of Energy Supervisor: Dr. M.P. Amineh

Second Reader: Dr. H.W. Houweling Date: 24-06-16

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Acknowledgements

When I started studying Political Science at the University of Amsterdam four years ago, I was mainly interested in Dutch Politics. Over the years, I have developed a very profound interest in what goes on beyond the Netherlands. However, my requests to follow the IR as well as Policy and Governance module during my second year were denied, so I ended up following many EU-related courses within the Policy and Governance framework. During my Masters, however, I was able to follow an elective course labeled; Energy

and Geopolitics in Eurasia - the European Union and China, which was taught by Dr. M.P. Amineh. For me the

elective was a real risk to take, as IR had never been my key focus and I did not know if I would be able to keep up my GPA on this de-tour. I was therefore very surprised when Dr. Amineh said he thought I would be well-suited to join his MA project, after just the second lesson. The idea got stuck in my mind as I got

entrenched in a paper on Lithuanian energy-security management. I spend a large part of my Christmas Holiday reading about post-Soviet pipeline politics, and almost forgot about my other paper. It was a very profound interest in energy studies and critical geopolitics, as well as Dr. Amineh’s positive attitude, that made me decide to choose the project labeled The Political Economy of Energy to write my thesis.

The work you are about to read is the result of six months of research into three countries that I was not even slightly acquainted with before my Masters. As I was aware of this lack in general knowledge, I spend many nights reading articles, papers and news items, but also with watching documentaries and discussing the matter with my friends and family. Although there is so much more to say about China and Central Asia, I feel like this project has helped me to attain at least the basic knowledge about their geopolitical relations, domestic policies and energy-sector developments. Although it required a lot of time, discipline and

motivation, I feel like it has enriched me not only as a Scholar but also as a person, to have engaged with this part of the world. I am sure I have also enriched my social environment, as many of them did not know anything about Kazakhstan and Turkmenistan before I bombarded them with bits of knowledge.

With regard to the completion of the current work, I would firstly like to thank Dr. M.P. Amineh, the most profoundly dedicated teacher I have ever encountered, who lives and breathes his subject matter and was always willing to put in the extra effort needed for any student to reach progress. I would also like to thank Dr. H. Houweling for his willingness to read and assess my work (good luck). I would furthermore like to thank Prof. Dr. J. Grin, who guided me the first half of my Masters. I was very much inspired by his faith in me as a student. I would also like to thank my fellow students, especially Iris Visser, who inspired me to work harder, Gianni Reyke, with whom I could always talk freely, Wouter de Visser, who helped me with the interpretation of a very specific piece of literature, and Simon Nieuwenhuijsen, who was always there when I was up late to work on my thesis.

I would also like to thank my friends, two specifically. Firstly, Rosanne Schneiders, who shared my faith at the University of Rotterdam, with whom I studied, discussed and whom often helped me to put things in perspective. Secondly I would like to thank Nastia Machina, because she was always there when I was stressed, needed a study-buddy or just a break from my work. I would also like to thank the people from my work and Political activities for their patience as I have been largely absent over the past half year. Lastly, and profoundly, I would like to thank my direct family, my mom, my sister, my dad and his girlfriend, who had to sit through monologues about political rule in Turkmenistan, energy consumption in China and many other topics because of me. Although my family never asked me to push my boundaries in life, I have always sought to make them proud.

Melanie van Driel

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Abstract

This thesis will provide a comprehensive analysis of the involvement of the Chinese state in the energy sectors of Turkmenistan and Kazakhstan between 2006 and 2016. This will be done by using a critical geopolitical perspective, as it enables an analysis of the factors that have facilitated China’s activities beyond national borders, and can explain the increasing importance of geo-economic means in the international sphere. It will be claimed that China’s sustained domestic growth can only be maintained by increased energy-imports, and that China’s stimulation of its National Oil Companies to acquire resources abroad must be seen as a main tool for geo-political economic power projection. It will be argued that China actively uses 1) foreign policy tools, such as diplomatic relations with these countries, to facilitate 2) the investments, acquisitions, deals and pipeline-projects of its NOCs. In the geo-strategic realm, however, China currently lacks the means to guard its investments and infrastructural projects against regional instability, and as Kazakhstan and Turkmenistan can both be categorized as regimes vulnerable to domestic revolt, these factors, at least in the medium term, have the potential to negatively influence Chinese energy supply security from Central Asia.

Keywords

Energy supply security, oil and gas, Chinese NOCs, CNPC, trade investment and finance, Turkmenistan, Kazakhstan, critical geopolitics

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8 Maps

Map 1: China

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9 Map 2: Kazakhstan

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10 Map 3: Turkmenistan oil and gas map

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11 Map 4: Central Asia oil and Gas Pipeline Network

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List of tables

2.1 China’s crude oil imports by origin (2014), in bbl/d 34

3.1 China’s largest National Oil Corporations 39

by Fortune 500 position, revenues and employees

3.2 Onshore Gas regions in Turkmenistan (in trillion cubic feet/meter) 48

4.1 Turkmenistan; proven hydrocarbon reserves, 51

production, consumption and export 2005-2015 (in tcm and bcm)

4.2 Turkmen gas exports by country ( in bcm) 52

4.3 Existing and proposed gas pipelines of Turkmenistan 52

4.4 Production sharing agreements Turkmen gas sector 56

4.5 Kazakhstan; proven hydrocarbon reserves, production, 61

consumption, export 2005-2015 (in billion bbl and trillion cm)

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List of abbreviations

ABC Agricultural Bank of China ADB Asian Development Bank

AIIB Asian Infrastructure Investment Bank AMG AktobeMunaiGas

bcm Billion cubic meter b/d Barrels per day

tb/d Thousand barrels per day

CNPC China National Petroleum Corporation CCB China Construction Bank

CCP Chinese Communist Party CDB China Development Bank CEIB China Export-Import Bank CEO Chief Executive Officer

CISFTA Commonwealth of Independent States Free Trade Area CITIC China International Trust and Investment Corporation CNOOC China National Offshore Oil Corporation

COD Central Organization Department CPK Communist Party of Kazakhstan CSDP Common Security and Defense Policy CSTO Collective Security Treaty Organization

CU Customs Union

DBK Development Bank of Kazakhstan DPT Democratic Party of Turkmenistan EDB Eurasian Development Bank EEC Eurasian Economic Community EEU Eurasian Economic Union

EIA Energy Information Administration ENI Ente Nazionale Idrocarburi

EU European Union

E&P Exploration and Production FDI Foreign Direct Investment GDP Gross Domestic Product FDI Foreign Direct Investment GDP Gross Domestic Product IEA International Energy Agency IMF International Monetary Fund IOCs International Oil Companies IPE International Political Economy

KMG KazMunaiGas

mtoe Million tonnes of oil equivalent MOF Ministry of Finance

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14 MPI Ministry of Petroleum Industry

NATO North Atlantic Treaty Organization

NDRC National Development and Reform Commission NEA National Energy Administration

NEC National Energy Commission NOCs National Oil Companies

OECD Organization for Economic Cooperation and Development PCA Partnership Cooperation Agreement

PRC People’s Republic of China PSAs Production Sharing Agreements

RMB Renminbi

SAFE State Administration of Foreign Exchange

SASAC State-owned Assets Supervision and Administration Commission SES Single Economic Space

SCO Shanghai Cooperation Organization

Sinopec China Petroleum and Chemical Corporation SK Sovereign Wealth Fund Samruk-Kazyna SOEs State-Owned Enterprises

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Chapter 1

Research Design

1.1 Overview of the research

Over the time-span of four decades, China has transformed from a relatively isolated international actor with limited material capabilities, into an increasingly industrialized country with enduring, impressive growth rates. However, to maintain domestic growth, China increasingly comes to rely on energy-imports. This has inclined a more active foreign policy stance of China’s political elite, who have transformed China’s National Oil Companies into globally active, and competitive entities, with the aim of acquiring resources abroad. It is often claimed that as these NOCs move abroad, they are supported by diplomatic and financial efforts from the state.

To acquire a better understanding of these dynamics, this research will attempt to; (1) specify the extent to which China’s National Oil Companies are directly controlled and managed by Chinese state institutions and actors, domestically, but especially when these companies attempt to realize an international business portfolio. To understand the role of China’s NOCs in Chinese attempts to enhance domestic energy-supply-security abroad, (2) this research will thereafter analyze the way in which the activities of CNOCs relate to economic, diplomatic and security related efforts taken by (other) state entities in two case studies, (3) namely Kazakhstan and Turkmenistan. Combining the cases of Kazakhstan and Turkmenistan in one analysis can add to in-depth knowledge the possibility of comparison. This helps to illuminate the overall patterns that can be discerned in state, economic and security related actions and actors involved in these two cases. The Chinese NOC of CNPC will be the main Chinese NOC under study. There are two reasons for this. Firstly, CNPC is the main economic actor involved in the Kazakh and Turkmen energy sector. Secondly, CNPC has traditionally been most intertwined with the Chinese state. This means that compared to other Chinese NOCs acting abroad, CNPC’s interests might be expected to be most clearly linked with those of the Chinese state. As the Turkmen and Kazakh political elite both exercise control over their energy sectors through NOCs as well, an analysis of these companies, as well as state-actors is necessary to understand international

cooperation.

Instead of isolating either diplomatic, economic or security activities, this thesis thus aims at grasping the complexity of their interaction, postulating that they constitute the main tools for Chinese involvement in resource rich countries. The objective of this thesis will be to analyze these mechanisms of involvement, and the way in which they contribute to Chinese control in the energy sectors of resource-rich countries, by looking at these two concrete examples. To do so, this thesis aims at grasping the complexity of diplomatic, economic and security efforts. To further examine this relation between the Chinese state, its NOC CNPC and China’s attempts to realize energy supply security from Turkmenistan and Kazakhstan, the main question of this research will be the following: How did the Chinese state-class and China’s National Oil Companies try to secure

Chinese energy supply-security from Turkmenistan and Kazakhstan between 2006 and 2016?

To answer this main question, this research will answer the following sub-questions: 1. How has China’s fast (economic) development affected its domestic energy security? 2. How can the relation between state, market (and society) be defined in China?

3. How can this (top-down) relation be observed in the economy, energy sector, and more specifically in the control over CNPC?

4. What political, economic and security-related activities have China's state-class and CNPC undertaken in Kazakhstan and Turkmenistan between 2006 and 2016?

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The main social entities and actors under study will thus be the Chinese, Kazakh and Turkmen political-elite and their National Oil Companies (NOCs). In all cases, the political elite is pivotal for the analysis, because of its involvement in the actions of its NOCs, apart from their role as the shapers of the domestic economy, and diplomatic and security related endeavors. The year 2006 provides a good starting point for an investigation of 1) China-Turkmenistan relations, as this year marks the start of a recent transformation of Turkmen exports to China, from cotton to gas-based and from millions to billions of dollars (more about this later). This directs attention to the fact that Turkmenistan has become a more important source of energy-supplies for China over the last decade, making it an interesting case to study. The importance of hydrocarbons in China-Kazakhstan trade 2) has also risen significantly over this period, although not as extreme as in the Turkmen case. The year 2006 was also the year in which both Turkmenistan and Kazakhstan agreed to the creation of the Central Asia – China gas pipeline (although the China-Kazakhstan part was officially already agreed upon in 2003), a pipeline that would expand the opportunities for gas exports from Central Asia to China with 55 billion cubic meter (bcm) in just seven years.

1.2 Literature review

To posit this research within a broader scientific tradition and debate, this literature review will start with a discussion of China’s increasing resource scarcity, then connect this to energy security as a strategic issue and move on to the discussion surrounding the role of its NOCs in the inter (or lately even trans-)national arena. This will be followed by a review of the literature that has already been produced on the link between China’s energy security and Kazakhstan and Turkmenistan. A multitude of studies has attempted to analyze the link between Central Asia and Chinese energy supply security, but since this study is aiming to look specifically at two distinct cases of Chinese involvement, the literature review will be based on the writings on Turkmenistan and Kazakhstan specifically.

China’s resource scarcity, energy security, policy priorities and strategy of going abroad

Ever since the Communist Party came to power in 1949, energy has been a returning issue for policymakers in China (Jian, 201X: 387). The issue seemed to be solved when during the 1950s, China discovered large oil fields (Xing and Clark, 2010:3). Domestic resource use and ensuring sufficient supply to enable economic growth became pillars of its energy policy (Cao and Bluth, 2013). Exploration started and during the 1970s China could be considered a net exporter, shipping oil to Japan. However, growth in production started to decline during the 1980s, as oil fields started to mature.

This decline in production coincided with the start of a staggering growth period for the Chinese economy, with the annual rise in GNP averaging over 8,6% between 1979 and 1991 (Jian, 201X: 387). This GNP rise coincided with population growth, which was followed by a rise in demand for energy to produce consumer products, to use as fuel and to support Chinese farmers operating oil-intensive production (Jian, 201X: 387). As certain people benefitted from their entrepreneurship during this process of industrialization, furthermore, China has slowly started to develop a middle class that has increasingly relied on oil as a mode for transport. These developments mean that China has to deal with an ever increasing demand for energy (Amineh and Yang, 2014: 503).

Xing and Clark (2010), Christie et. al. (2010: 66) as well as Cao and Bluth (2013) postulate that as domestic resources have depleted, energy increasingly becomes a matter of national security for the Chinese ruling-elite, as it is essential for sustaining economic growth, and this growth is instrumental in legitimizing its

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17 current rule. They have thus postulated energy as a basic political and strategic concern for China’s leadership (ibid:12). As 2003 saw China develop a ‘Twenty-first century oil strategy’ followed by a National Energy Security Strategy and Policy report in 2005, energy has indeed started to become a larger concern for the regime (Cheng, 2008).

Cao and Bluth (2013: 382), Ma et al. (2012), Korin and Woolsey (2008) and Noreng (2002) more clearly postulated the specific importance of oil (and gas), stating that as oil fuels core functions of the modern economic system – for instance transport - and national defense, it has no replacement in the middle or long term.

Noreng (2002) has put it most bluntly by stating that energy is a politicized commodity as it is critical to economic and military strength, and therefore is vital to governments in general. This implies that this sector will, especially in times of scarcity, be characterized by the involvement of market, but also state actors. Cao and Bluth (2013) add to this by directing attention to the Chinese state. As this is characterized by authoritarian rule, the state plays an even larger role in energy security because it exercises a greater role over the economy.

Development strategy, energy sector reform

Xing and Clark (2010) have linked China’s development policies with its current energy situation, postulating that it has moved from self-reliance to a market-oriented development approach in the face of energy scarcity. Shaofeng (2009) has labeled this the marketization of China’s energy security. Andrews-Speed et. al. (2000) have tried to conceptualize reforms that underpinned this change by the attempts of the Chinese regime to adjust its internal market to the international market. The regime allowed a certain degree of economic liberalization, and a relative process of decentralization in certain areas of economic life (Gonzalez-Vincente: 2011).

One of the aims of these reforms was to create more internal competition amongst its National Oil Companies, but also to prepare them for competition on the international market by increasingly separating government and industry management. Andrews-Speed et.al. (2000) concluded that since these reforms coincided with attempts to reduce the costs of government, the outcome was an imperfect market where monopolistic tendencies remained and government agencies had to rely on industry actors to be able to manage the energy sector. China’s energy sector therefore became largely dominated by its three largest National Oil Companies, CNPC, CNOOC and Sinopec.

China’s domestic energy strategy

Since 1992 China has become a net-importer of energy (Cheng: 2008). In attempts to decrease external energy dependency, the Chinese regime has (1. started to establish a national oil reserve, 2) started to increase the efficiency of oil and coal consumption, 3) tried to develop coal-based alternatives, 4) started to increase sustainable energy production in the form of solar, wind, bio and ocean energy 5) increased Energy saving policies by decreasing energy intensity (Cao and Bluth, 2013; Nolan et al., 2004; Rong and Victor, 2011; Xie et al., 2010; Ziegler, 2006).

However, oil and gas will uphold China’s external dependency, at least in the medium term (Danreuther: 2011). This is especially true since environmental concerns surrounding coal have made

diversification to natural gas a priority (Asif and Muneer, 2007; Lin et al, 2010). Because of this China also, 6) Reformed the National Energy Commission and tasked it with responsibility for oil security and, 7) Created a national oil foundation to develop oil finances and futures. However, a crucial aspect of China’s energy policies, and most important for our current study, has been China’s need to create energy-related foreign policy and facilitate the outward behavior of its NOC’s.

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Foreign energy policy and NOCs ‘Going abroad’

As China has increased its external dependency on energy, it has tried to 1) diversify its oil and gas imports in terms of geographic location and mode of transport with minimal risks aimed at in its doctrine of a ‘Peaceful rise’ (Cao and Bluth, 2013). Cao and Bluth (2013) and Noreng (2002) have concerned themselves with China’s role in the international sphere. Cao and Bluth (2013) state that China has adopted some of the discourse of liberal and constructivist approaches that emphasize cooperation and soft power and aims at constructing its image abroad as a trading state and not a military territorial state, avoiding strategic rivalry. Noreng (2002) concretized this foreign policy as entailing the promotion of a stable international environment conducive to economic development, combined with the principle of non-interference that basically includes all countries as potential trading partners. The increased international involvement is also linked to China’s involvement in multilateral organizations such as the WTO and SCO.

The second and intertwined element was to 2) establish cooperation on developing oil and gas wells in other countries, either with host-country NOCs, governments or with IOCs operating there (Ziegler: 2006). This has been labeled ‘the going abroad plan’, which increasingly combines energy security with geopolitics (Ziegler, 2006; Cao and Bluth, 2013). This strategy was suggested in the 1990’s and included in China’s 10th Five Year Plan in 2001 (Ziegler, 2006). The strategy encouraged big Chinese business to invest abroad, makes active use of bilateral and multilateral diplomatic and economic platforms to promote Chinese companies, facilitates access to credit and simplifies the requirements to conduct overseas investment, provides companies with information on their target countries and capacitates managers with policy knowledge and abilities required for the internationalization process (Gonzalez-Vincente, 2011).

Gonzalez-Vincente’s (2011) and Breslin (2005) state that SOE’s remain part of the state apparatus as they claims that in promoting economic reform, Chinese elites never intended to loosen party control. This was supported by observation that during the ‘restructuring and flotation’ strategy, where many of China’s NOCs became stock-exchange listed entities, the Chinese state would often become a majority shareholder. In the case of CNPC, only operations within China were originally listed.

These claims have been preceded and followed by a large academic debate on the nature of state-NOC relations after China stimulated their ‘going out’.

Assessing the relation between China and its NOCs: NOCs as (relatively) independent market actors

Gonzalez-Vincente (2011) directs attention to the fact that some consider international competition between NOC’s, like for instance between CNPC and Sinopec for assets in Brazil, as a case in point for the argument that NOCs have become independent market actors, a line of argument followed by amongst others Downs (2007) and Jian and Sinton (2011), Kennedy (2010) and Shaofeng (2011).

Downs (2007) uses this argument and furthermore claims relative autonomy for NOCs due to their relative strength vis-à-vis the central government’s energy bureaucracy, large profits earned during the recent oil boom and internationally listed subsidiaries. Jian and Sinton (2011) furthermore emphasize the great power, and possibly even dominance of NOCs because of their historical association with former ministries, the high rank of their top leaders and the size of their organizations and capacities compared to government agencies to oversee them.

In this sense Downs (2007) can be conceptualized to follow on the conclusions of Andrews-Speed et al. (2000) about China’s energy sector reforms as having led to a reduced grip on NOCs in the international sphere. Kennedy (2010) and Shaofeng (2011) also belong to this category by claiming that domestic problems of control surrounding NOCs are now playing themselves out on an international basis now energy supply security has taken on an international dimension. China’s NOCs are seen as not helping China increase energy

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19 security, and as mainly seeking profit, as most oil is sold on international markets because of transport costs (Downs, 2007; Shaofeng, 2011). The state-backed-ness of China’s NOCs is seen as a necessary, but not sufficient, reason for NOCs to be arms of the state, as the state’s ability to govern the sector is claimed to be weak (Kennedy, 2010; Shaofeng, 2011)

De Graaf (2014) has assumed NOCs to be more of a hybrid entity. As China’s NOCs increasingly cooperate with IOCs abroad, they have formed an alliance with Western IOCs, trying to increase their profitability, portfolio and profits. Domestically, she envisions them adhering to more traditional values and activities, for instance energy security and social responsibilities.

NOCs as interlinked with the state

Ziegler (2006) sees NOC-autonomy as impossible, as government –politics -, and corporate interests -

economy- are interlinked and overlapping in China’s unique brand of capitalism, making it difficult to separate the interests of China’s NOCs from those of the Chinese state (Hults and Thurber: 2012). Taylor (2014), showed that in recent years China’s party-state institutions have expanded the political, organizational and fiscal capacities needed to exercise centralized -top-down- authority, while retaining the incentives and dynamics of earlier decentralizations in the energy sector. This is a direct response to those researching state-NOC relations from the approach of fragmented authoritarianism (FA), like Andrews-Speed et al., Downs, Jiang and Sinton, that emphasize the influence of mid-level bureaucratic organizations in policy-making and outcomes. Their ideas are conceptualized as based on a particular period of policymaking in China, namely the decade of liberalization and decentralization.

Compliance can currently be solicited through a variety of Chinese Communist Party (CCP) controls, countering the effects of bureaucratic fragmentation. Exemplary is the direct control of the CCP’s State Council over its State-owned Assets Supervision and Administration Commission (SASAC). SASAC influences China’s top NOCs by its official position of manager of the state’s shares in them. The state-agencies also influence the professional incentive structures of NOC employees, as they appoint and remove top executives, and evaluate and reward their performance at least partly on the basis of party-allegiance. (Taylor, 2014). The steep hierarchical division of authority and top-down management governing state-NOC relations de-facto means NOCs can be directed and influenced by the higher echelons of the state-class. The state thereby remains the ultimate guardian of its energy industries’ strategy and will continue to have a stronghold over its NOCs.

Applying this line of reasoning to activities abroad, NOCs are deemed an integral part of state energy policy and foreign acquisitions are seen as security measures by Noreng (2002), Zhang (2012) and Amineh and Guang (2014). Zhang (2012) conceptualizes China’s distrust in the foreign market as the rationale behind the Going Out policy. The role of NOCs is then to gain control over foreign trade flows, strategic investment and transport routes regarding industrial inputs from fixed-stock mineral and metal deposits available in the world (Amineh and Guang: 2014). It is therefore implied that the final destination of foreign production is irrelevant for the conceptualization of control envisioned by the regime. In the context of this study, this line of thought will provide the starting point for examining China’s ‘going out’ policy. It implies that diplomatic –political-, security –military- and market - actions of the Chinese state in our case studies will include the actions of China’s NOCs, as the regime is considered to have a certain degree of control over their actions.

China’s strategy towards Central Asia

Ziegler (2006) has stated that neither Russia nor Central Asia can meet all of China’s growing oil needs, but are deemed a possible reduction of dependency on the Middle East, thereby enhancing energy security. Consequently, Central Asia and Russia occupy the second tier for China’s oil supply and their resources are a

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20 “strategic backup”. However, in terms of gas Central Asia and Russia have strategic advantages, as they are geographically proximate and gas is still mainly a regional market (Amineh and Guang, 2012).

Closer economic integration with the Central Asian states in the form of rail, road and air links, oil and gas pipelines, and electrical grids, is an important element in Beijing’s strategy to diversify energy supplies. China’s strategic interests in the Central Asian region furthermore include maintaining stability, preventing terrorism, separatism and religious extremism, and controlling narcotics trafficking.

Turkmenistan and Chinese energy supply security

The most extensive analysis trying to make a connection between Turkmenistan, China and Chinese energy supply security has come from Lanteigne (2007), who departs from China’s developing energy needs as originating from its economic transition, impacting diplomacy. He states that China’s diplomacy is mainly colored by energy, and that Beijing is willing to link energy development with energy trade in Turkmenistan.

China-Turkmenistan diplomatic relations

The overall possibilities and impediments for China-Turkmenistan diplomatic relations to provide a basis for cooperation on energy matters form an overarching concern for Sir and Horak (2008), Lanteigne (2007) and Pomfret (2008). The biggest debate surrounding this topic is based around the transition from Turkmenistan’s first leader – Turkmenbashi – to Mälikgulyýewiç after 2006.

In the historical context of Sino-Turkmen relations after 1991, Sir and Horak (2008) problematize the leadership change in this strictly centralized system. The yet unclear foreign policy orientation of the new leadership is seen as a source of insecurity about the continuation of the Turkmen foreign policy approach, which used to be dominated by relative isolation and neutrality. Turkmenistan’s aim to shield its population from foreign powers attempting to change their political system by pursuing a normative foreign policy has been deemed a main reason for this strategy (Anceschi: 2010). Sir and Horak (2008) seem to lean towards a positive stance on Mälikgulyýewiç’s coming to power for China as they direct attention to his involvement in removing the obstacles around the Chinese-Turkmen gas pipeline by visiting the SCO in 2006. This is seen as the materialization of China-Turkmenistan relations. Pomfret (2008), in his analysis of Turkmenistan’s foreign policy, takes the positive stance even further as he argues that Mälikgulyýewiç has been more diplomatically active than his predecessor, thereby increasing the possibilities of cooperation with the country.

Lanteigne (2007) follows Sir and Horak (2008) and Pomfret (2008), emphasizing Turkmenbashi’s policy of ‘positive neutrality’, implying its non-alignment with the great powers in the region. However, he is less enthusiastic of the post-Niyazov – Turkmenbashi’s original name – strategy of increased diplomatic involvement for China. During Niyazov’s rule, China-Turkmenistan relations were cordial, businesslike and based on the promise of joint energy development, as China seemed to accept that it had no influence on the Turkmen regime. Other exceptions were Iran and Russia. As Mälikgulyýewiç started his rule by claiming reforms of the political system, he sees this as a possible threat to the preferential position of China, which will now face increased competition from the EU, US and Russia. He advices China to pursue cooperation with Turkmenistan through the SCO, but postulates that this necessitates a change in Turkmenistan’s stance towards the organization.

The China-Turkmenistan pipeline

The gas pipeline as a possibility for China to diversify its supplies has been the second returning element of China-Turkmenistan energy security analyses. Hancock (2006), departing from the Turkmen dictatorship, looks at pipelines as a domestic problem for Turkmen gas, and consequently economic development, as most of them stemmed from the Soviet era and were directed towards Russia. He then discusses six options for

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21 pipeline diversification of which he claims China is the best option. However, he saw the pipeline unlikely because of its high costs, Turkmenistan’s uncertain reserve levels, the unrealistic commitments that were made about it, Niyazov’s quirky personality, other transit states’ reluctance to grant access and China’s slow progress in converting from coal to natural gas.

Sir and Horak (2008) have postulated the pipeline as the most important impetus for increasing the possibilities for economic cooperation between China and Turkmenistan. They claim that during the time they wrote the article, China still belonged to Turkmenistan’s minor trade partners, lagging far behind Russia, Turkey and Iran.

As far as the pipeline discussion is concerned, some of Hancock’s (2006) impediments were taken away as (1) Turkmenistan got a new leader, (2) other transit states eventually agreed (3) China has started to increase its dependence on gas and (4) Turkmenistan’s reserve levels were estimated to be very large. Because of this, he got proven wrong as the pipeline was build. Contrary to the timeframe of Sir and Horak (2008), within which China-Turkmenistan trade relations were dismal for Turkmenistan, the reality of our current study is that after the pipeline, China-Turkmenistan trade relations have changed.

The pipeline discussion of Hancock (2006) states that pipelines were a way for countries to choose alliances after the collapse of the Soviet Union. Cutler (2010) also stated the importance of the China-Turkmen pipeline as a signifier as China-Turkmenistan’s break from Gazprom and the Russian state.

Anceschi (2010) takes a unique position in the debate by opposing the optimism of Pomfret (2008) and Sir and Horak (2008), but also opposing the idea of Lanteigne (2007) that China will face increased competition, and his idea that the future foreign policy of the regime is unclear. Anceschi states that

Turkmenistan has and will have special relations with the Russian Federation when it comes to foreign policy, and that increased international cooperation – EU, US, China – is mainly energy-related and not military or diplomatic. Anceschi can therefore be seen as implying that Chinese cooperation with Turkmenistan will always be colored by this special relation. However, as Sir, Horak and Cutler mainly attempt to asses energy sales – and not diplomacy or security - when postulating the possibilities for China-Turkmenistan relations, their positions might not be as distant from Anceschi as they may seem.

Kazakhstan and Chinese energy supply security Cooperation as mutual (economic) interest

Saurbek (2008), has made an analysis of Kazakh-Chinese relations, specifically concerning himself with the energy sector, geopolitical circumstances and legal cooperation. His main claim is that cooperation is in the interests of both countries economically. This is supported in his analysis by devoting considerable attention to diplomatic visits and legal agreements between the two countries. Examples are the 1993 Declaration of

friendly relations, the 1997 Collaboration agreement in the oil and gas sector and the Programme of Collaboration for the energy sector with a timeframe from 2003-2008. He postulates that since most of these agreements are

one-directional in letting China operate in Kazakhstan, they make clear China’s role as a consumer and

Kazakhstan’s role as a producer of fuels. In this respect China is especially important for Kazakhstan as its landlocked-ness makes diversification difficult and the country has been aiming to become a large-scale resource exporter. Rousseau (2013) also considers growing economic interdependence as a leading element in bilateral relations by stating that energy development and export dominate relations. Kazakhstan is deemed important for China in securing sustainability in its growth path. The Kazakh economy is expected to become more and more dependent on China’s investments, manufactured goods and energy imports.

The role of the Kazakh elite

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22 state, Ostrowski (2010) has analyzed the changing relation between the Kazakh authoritarian regime and oil-sector-actors over time, implying that domestic oil-sector management matters. Schatz (2011) has criticized Ostrowski’s conceptual argument that formal and informal institutions matter to authoritarian rulers at different moments in different proportions. He claims Ostrowski assumes a large role for political actors in determining outcomes, but does not take into account that formal institutions themselves can be considered as informal because of Kazakhstan’s widespread corruption and bribery. Rousseau (2013) adds to this by posing the Kazakh elite as a possible source of problems for China-Kazakhstan relations.

Although further manifestations of this discussion have remained absent, it can be assumed that especially the conclusions drawn by Saurbek (2008) would be considered as ignoring political reality by other authors researching China-Kazakhstan energy relations. Both the idea that legal documents, or institutional divisions can provide insight into the proceedings of economic relations, and the idea that interests can be defined at the state level have been contested by the works of, amongst others, O’Neil (2014) and Cutler (2014).

The role of in-transparency for NOCs as China’s main economic actors

Most authors have taken the factor of corruption and the role of the Kazakh regime into account. Rousseau (2013) directs attention to Parliamentary involvement in legal disputes over energy-related acquisitions of third parties. Liao (2005) gives the example of CNOOC and Sinopec’s attempts to buy shares in the Kazakhstan Agip KCO group in mid-2003. When China was outvoted by IOCs currently having a stake, the Kazakh government got involved to secure China was able to acquire a 50 percent share. In other examples, China was preferred over, for instance, India. O’Neill (2014), Rousseau (2013) and Liao (2005) to some extent all state that the current corrupt and in-transparent political system of Kazakhstan is securing and protecting Chinese investments, at least when those investments are large and by state-owned Chinese firms, and that it is therefore in its interest.

Cutler (2014) states NOCs have a repertoire of financial and contractual instruments – development assistance, loans from policy banks -, as the state expands ways to support their now relatively autonomous activities. He postulates that these financial tools have replaced classical ‘oilfield diplomacy’, as they become coupled with service contracts or equity stakes for Chinese firms. Liao (2005) postulates that CNPC has become the second largest oil company in Kazakhstan, because oil deals are strategic games and CNPC’s investment climate is backed up by the Kazakh and Chinese regime. O’Neill (2014) adds that CNPC’s investment is preferred by the Kazakh regime mainly because it is assisted by foreign economic policies, such as loans, of the Chinese regime. It is these mixed motivations as both profit seekers and arms of the

government that give Chinese SOE’s greater options. Generally, China can make package deals that IOCs cannot offer. Members of the ruling elite and institutions – an example is KazMunaiGaz – are furthermore strategically made stakeholder in the success of these investments.

The political elite is thus a dominating factor for explaining outcomes in the energy sector (Liao: 2005). It has been postulated that personal interest trumps legality for the Kazakh regime, and investments are economic as well as political tools (O’Neill: 2014). In his elite analysis, O’Neill (2014) makes clear that in Kazakhstan state-run is the same as run by Nazarbayev’s family. Beneficiaries of investments are located in financial groups part of Nazarbayev’s family because upholding relations is in the interest of China. They provide China funding and ownership advantages. They can do these things because there are little checks on the executive. Because Kazakhstan favors a strategic partnership with China, the Kazakh in-transparent proceedings are seen as favorable.

Liao (2005), in his analysis of diplomacy, and the acquisitions, investments and joint ventures of Chinese NOCs, directed attention to the suspicion that the (package-)deals of China often lead to on the side of IOCs already involved in Kazakhstan. The example the Agip KCO groups provides a case in point as IOCs

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23 provided an initial impediment for NOC involvement. Their suspicion grew as the Kazakhstan government overruled their refusal. However, China’s advantage might not be so certain as assumed.

The caveats when concerning Energy security and the Kazakh political system – regime

Laio (2005) states that Kazakhstan wanted to prevent China’s full ownership of PetroKaz, for national

security reasons. The legal system will thus also be corrupted when security is involved. In the case of resource nationalism, Chinese investments are not well protected by the legal system. Diplomacy thus serves energy security as long as the interests of the regime are stable. Because China’s involvement is dependent upon the personal interests of the regime, its involvement will furthermore be in jeopardy if there is a regime change as happened in Syria and Libya. Cutler (2014) claims NOCs are well enough implanted to be able to negotiate the uncertain conditions of succession, however he seems overly optimistic in the face of contrary evidence in the face of the abovementioned examples. An explanation for this is that Cutler (2014) perceives the relation between China and Kazakhstan in terms of Foreign Direct Investment of NOCs, looking mainly at the extent to which Chinese NOCs are investors and stakeholders, rather than the potential threats of physical

circumstances.

Kazakhstan’s multi-vector foreign policy

Geopolitically, after Russia, with whom Kazakhstan shares many cultural and ethnical aspects, the large powers of the United states and thereafter China have started to involve themselves in Kazakhstan.

Yesdauletova (2009) states the position of China and Russia is stronger than that of the EU, who only really got involved after 2007.

The complex geopolitical environment and a relatively small and young economy were the main reasons behind Kazakhstan’s multi-vector foreign policy. Saurbek (2008) says this policy entails the willingness to develop and improve the strategic, diplomatic and economic relations with major geopolitical powers in the international arena, namely China, Russia, the US, Europe and ‘the Muslim world’. Yesdauletova (2009) adds that economically, Kazakhstan wants to be an equal partner in the world-economy, thereby balancing involvement of others so it does not have to deal with one great power at a time. Rouseau (2013) has stated that the China-Kazakhstan pipeline, within this policy is of strategic importance as it diversifies from Russia. Cutler (2014) gives examples of Kazakhstan ‘putting its natural resource eggs in multiple baskets’ by claiming that oil deals are divided amongst different countries strategically. Although China is a preferential partner, the expectation is that China will not be allowed to gain a stronghold.

Although Yesdauletova (2009) uses the examples of Kazakhstan’s involvement in for instance the Eurasian Economic Community and the Shanghai Cooperation Organization as examples of Kazakhstan’s multi-vector policy, it can also be argued that its original aim has been lost, as Kazakhstan will now

increasingly be bound to cooperation with the regional powers, thereby helping China to secure cooperation. One might thereby state that China and Kazakhstan’s mutual membership points towards their increased interdependence (Rousseau, 2013). It also helps to multi-lateralize issues that previously formed problems between Kazakhstan and China, for instance ethnic hostility and migration. Saurbek (2008) follows this line of argument by claiming that further synchronization of legislation, tax customs and investment laws is

preferential for cooperation between China and Kazakhstan to improve, but that this cannot be done by excluding states in the region. The SCO is then postulated as an organizational bridge for cooperation problems. This is plausible as the stance of the Kremlin is to accept collaboration between Kazakhstan and China when Russian companies are also involved, although in practice, this is not always the case.

However, there are also authors claiming that Kazakhstan’s multi-vector foreign policy might impede China’s position in Kazakhstan. Yesdauletova (2009) makes an appealing argument by claiming that

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24 cooperation like the SCO impedes China because it makes it increasingly difficult for China to ‘go at it alone’. One might interpret this as a danger for China’s special relationship with the regime, as this will increasingly be linked to third parties approval.

According to O’Neill (2014) The Kazakh government must balance its desire for diversity in its foreign relations against the benefits it receives from China’s financial flows. Kazakhstan is now increasingly directing itself towards China because it is expected to grow. However, if the Chinese economy slows down, it has options to continue its business elsewhere. If Kazakhstan’s geopolitical strategy changes in the near future, it is not unlikely that China’s tables will turn and the same unjust system will no longer work in its advantage.

Overview of the current literature and the contribution of the work

Several inferences can be drawn from the literature review presented above. Firstly, as growth is underpinned by resources and these resources become increasingly scarce, energy is becoming a strategic concern for China. Secondly, this concern has led to the facilitation of Chinese NOCs in their efforts beyond China’s national borders. Thirdly, the Chinese ruling-elite at the highest level can be assumed to exercise control over its NOCs beyond national borders because of the domestic structure of influence. Fourthly, the increased activity of CNPC in Kazakhstan and Turkmenistan must therefore be considered in relation to the role of these countries for China’s energy security strategy. Central Asia is seen as a source of diversification from oil from the Middle East, and in terms of gas – which still is a regional market – Central Asia has a strategic advantage because of its proximity to China.

It can, furthermore be inferred that scholars studying China’s energy security from Kazakhstan and Turkmenistan have both given considerable attention to the role of their current regimes, and their foreign policy on China’s position as a trading partner. There is no consensus regarding the influence of

Turkmenistan’s new leader. However, most authors imply that in Turkmenistan’s policies it differentiates between economic, military and political partners, and some add to this that only Russia fulfills all three functions. The corruption of the Kazakh regime and its multi-vector foreign policy are seen as possible threats to China’s energy security. It seems apparent that the preferential role of China’s NOCs can only persist with state-support, and any regime change will create insecurity surrounding its investments.

The role of Chinese NOCs in Kazakhstan is conceptualized as initially leading to the suspicion of third parties – IOCs and other countries – mainly because of the specific construction of their involvement, being backed up by the state to form preferential packages for the energy sector as well as the Kazakh regime. Mutual involvement in (regional) organizations forms another point of discussion, as it is conceptualized as an impediment as well as an opportunity for China.

This study can add to these debates by researching the extent to which the development of China-Turkmenistan and China-Kazakhstan energy and trade relations since the pipeline-agreement of 2006, have been facilitated or impeded by diplomatic and security cooperation, or shortly – evolving bilateral relations, thereby contextualizing energy-sector cooperation. The establishment of stable bilateral, economic and security relations can be facilitative of stable energy-sector cooperation, and thereby facilitate China in its attempts to increase its energy-supply-security from Turkmenistan and Kazakhstan. A holistic analysis can therefore provide insight into the position of China as a long-term cooperation partner, and consequently into any complications China might currently experience because of the corrupt, authoritarian leaderships of Kazakhstan and Turkmenistan.

Furthermore, this research adds to academic debates about Chinese energy-supply-security, by specifically including CNPCs investments, acquisitions and contracts as energy-security-related tools and mechanisms, in attempts to stimulate oil and gas flows from Kazakhstan and Turkmenistan. Although studies

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25 concerning Kazakhstan have sometimes included CNPC, they have not tried to grasp the relation between this actor and the Chinese ruling-elite in detail. In the case of Turkmenistan, Lanteigne’s analysis, although extensive, only briefly mentions the authoritarian nature of the Chinese regime, and does not mention the role played by CNPC when this regime tries to secure domestic stability through stable energy supplies from Turkmenistan. Although Sir and Horak (2008) and Hancock (2006) mention CNPC, they only briefly mention it as the main executive of pipeline projects and exploration operations.

Lastly, this research adds to the existing literature because it will provide an assessment of the political economy of Kazakhstan and Turkmenistan; by assessing the relation between the political elite and their NOCs, who control the most vital part of the domestic economy. Although NOCs have sometimes been mentioned, the role envisioned for them by the Turkmen and Kazakh regime in the energy sector and economy at large, is rarely conceptualized, even though energy-sector management is a key condition influencing the attempts of foreign actors trying to invest in the energy sector. The analysis of the political-economy of these RRCs can thus help to direct attention to the most important impediments or facilitative elements for the obtainment of resources for China, but also for other actors who try to enhance their energy-supply-security. This is especially interesting in the case of Turkmenistan, as until recently, no serious research has attempted to analyze the impact of the leadership change for China’s opportunities for involvement in the energy sector.

1.3 Theoretical and conceptual framework

To realize these contributions, this work follows in lines of work deemed as critical geopolitics. To be more specific, critical theory in general and the specific strand used for this study will be set-out below. To more fully conceptualize this research, the theoretical part will be followed by a definition of the term energy supply security. The resource scarcity model will be added to be able to more fully assess the facets of energy security.

Critical theory:

Critical theory provided the basis for an alternative perspective to classical geopolitics, that added to the study of International Relations by mainly studying geography as an explanatory factor. Classical geopolitics took global or regional structures as their main level of analysis, emphasizing outcomes as the product of structures (Kelly, 2006: 29). Although it is not a unitary approach in IR, Beate (1998) has identified three basic

epistemological and methodological elements that form the basis of many critical geopolitical works, following mostly from the critique of Horkheimer and Cox on positivism, which formed the basis for classical

geopolitics. Critical geopolitics often share 1) the idea of the need for reflexivity on normative assumptions and historical premises implicit in theoretical work (Beate, 1998: 615), 2) the methodological requirement of historicity, emphasizing the need to give a historical account of the prevailing order’s origin and evolution (Beate, 1998: 617) and 3) the strive towards a holistic method, or a method of totality (Beate, 1998: 618). Although the foundational thoughts for the study of critical geopolitics go back to the Frankfurther Schüle and were inspired by writers such as Horkheimer, Adorno, Habermas, Foucault, Derrida and Gramsci during the second half of the 20th_{century (Kelly, 2006: 28), the 1990’s saw a surge in critical geopolitics as the} Cold War came to an end. Critical geopolitics in this period became divided in three broad strands of research. First, there were those studying the influence of culture as a determinant of the borders of a community. An example of this is Andersons’ (1983) concept of ‘imagined’ or socially constructed communities, who are not based on every day face-to-face interaction among its members. The second strand was related to the study of discourses; this is what Haverluk et al. (2014) have identified as ‘popular’ or discourse-related critical

geopolitics of the likes of o’Tuatail, Dodds and Said (1994: 515). They took the decision-making level as their unit of analysis to expose plays of power within representational practices by studying narratives, concepts and

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26 signifying practices that reside within geopolitical discourses, to – in a Derridean sense – deconstruct them (Dodds, 1994: 516).

Combining IR with International Political Economy

Only recently a third strand of critical geopolitics (Kelly, 2006:33), has started to include the study of the International Political Economy (e.g. the later works of Cox, Corbridge, Agnew and Dodds). Apart from the general characteristics of critical geopolitics, these theories share their inclusion of non- or sub-state actors who’s influence has increased through increased economic globalization, and they postulate the general importance of increased economic development and interdependence for the constitution of geopolitical orders and interactions.

Amineh and Houweling (2010) have postulated that processes of sequential industrialization, or - series of interrelated and comprehensive social processes of change in state, society and the international system because of the change from an agrarian to an industrial base of production -, have created the current geopolitical order because early industrializing countries could domestically increase their wealth and

consequently their power by changing the domestic mode of production and constellation of social forces. It is the fear of losing in the process of industrialization –or being dominated by others- that

pressured China into reactive industrialization. Processes of sequential industrialization add the domestic level as an explanatory factor of geopolitical rise and decline. At the domestic level, an indirect competition is taking place between state-society units, as domestic development changes the dispersion of productive and coercive resources available in the world (Amineh and Houweling, 2010: 216).

Although authors like Agnew (2003) and Mercille (2008) have studied the case of the United States, Amineh and Houweling (2010: 218) add that to understand the transition efforts creating sequential

industrialization in different cases necessitates the inclusion of 1) the social mechanism of the

implementation of industrialization, 2) the place a country takes in the sequence of industrialization and 3) the domestic forces which provide the starting point for the transition (ibid). This implies that 1) China’s state-led mechanism of implementation - the combination of market pressures released by the government and government planning - 2) the reactive nature of its industrialization 3) the background of the global economy and the sensitivity surrounding possible interruptions of energy supply fueling economic growth and 4) the authoritarian nature of the Chinese state-society complex need to be taken into account when studying China. They therefore stated that in contrast to the ideas of Marx and Rustow, the specific constellation of transition efforts creating sequential industrialization differs with different cases.

The translation of the domestic outcomes of SI into foreign policies and actions can change

geopolitical order. Geopolitical orders are conceptualized as having a geopolitical and geo-economic element. The geopolitical is characterized by 1) alignment among ruling elites of hegemonic powers and those exposed to pressures to catch-up, 2) the ability of hegemonic power to transform inter-state anarchy in its area of dominance in a temporary, rule-governed hierarchical order and 3) the existence of contender states, those who challenge the legitimacy of the hegemony as is. The geo-economic element is a synthesis of the classical geopolitical idea that states require spatial concentrations of resources to achieve dominance, combined with the forces released by the global political economy (Amineh 2003; Amineh and Houweling 2005).

After China becomes increasingly developed, it is the pressure from those who have become accustomed to the new constellation of the domestic sphere – lateral pressure- , that changes domestic and foreign policy by necessitating expansion beyond natural borders to uphold the current growth-pattern. As sequential industrialization is followed by domestic growth and an additional need for resources, it provides an explanation for China’s current geo-political and geo-economic logic of expansion in this area. For specific states, Amineh and Guang (2014) have labeled the tendency of capital forces to expand geographically to find

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27 access to markets and resources abroad the ‘geo-economic’, and the need to enlarge its role as a global player to close the gap between wealth and power on the international state to remain domestic legitimacy the ‘geopolitical’ logic of cross-border activities (Amineh and Guang, 2014: 501-4).

Gaining natural resources in an international sphere dominated by market relations implies that states have to assure acquisitions on the world market, or have to try and project power in different geographical areas that are resource-rich. The expectation is that China will combine its economic with military and diplomatic force in the pursuance of energy security.

Its increased role in the international sphere can be defined by the way in which it has succeeded a process of catch-up development domestically. This implies China is now in a position to try and close the ‘productivity-power gap’ by matching its domestic capacity with a role in the international sphere. However this process is by no means straightforward, as it is often unclear for a NIC what its exact position in the changing order is, and how it can best secure itself. As China seems to succeed its state-led industrialization, its wealth forms the base for a translation into international power, measurable in its economic, military and political capabilities. It forms a new center of capital accumulation and a force of change (Amineh and Houweling, 2010: 216).

To retain its current path, China projects power in those areas with large domestic resources, of which the cases of Kazakhstan and Turkmenistan are two prominent examples. It is domestic, or lateral, pressure coming from societal as well as market actors in its industrialized economy with a growing demand for resources, that creates power projection in Kazakhstan and Turkmenistan. The aforementioned power projection is aimed at securing access to resources. As China’s power projection in Turkmenistan and Kazakhstan takes place in an already existing sphere of influence of early industrialized powers, one can therefore postulate the intersection of their trajectories in trying to acquire resources in these cases. This can be the cause for geopolitical rivalry, but also for cooperation.

In the case of resources, Chinese NOCs can be seen as part of China’s strategy to deal with the increasingly differentiated nature of the international sphere. It has changed its national ministries into semi-market actors, and given them the mandate to acquire resources abroad. In this way one might state that China has tried to adjust its activities beyond its borders to the new reality of the international sphere in the face of resource scarcity. Chinese NOCs as actors are thereafter supported by more classical state means such as diplomacy and bilateral agreements, and in the case of Kazakhstan with increased security cooperation. Understanding this relation can thus provide insight in the materialization of the mix of IPE with international relations in the reality of resource-scarcity.

Combining CNPC and the Chinese elite, who in the authoritarian Chinese regime depends on their resources for survival – and who is trying to increase cooperation to secure these resources -, brings us to the unit of analysis of this study, that of the Chinese state-market-military complex.

As China moves its activities beyond borders, the state-class, combined with CNPC as an economic actor and security cooperation as a strategy to secure influence, provides a complex force for power projection.

Concepts

Within this research, the term energy supply security will be defined as the capacity to secure reliable and affordable energy supplies at the right quantity and form (Cao and Bluth, 2013). Reliability means that there is a minimal threat of supply interruptions, which depends on the security and diversity of transit routes, the risks of supplier countries and the competition in the sphere of influence (Christie et al., 2010, p.67). Affordability means that energy is available at a price that can sustain and promote economic growth (ibid). Cao and Bluth (2013) also identify a time-trend in energy security, stating that in the short term states may be vulnerable to sudden changes in supply and demand, but this dynamic changes as resources become more

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28 scarce.

To assess the possible problems for China’s energy supply-security from Kazakhstan and

Turkmenistan, this thesis will use the resource scarcity model from Amineh and Guang (2014). This model can be combined with the above-presented ideas of sequential industrialization. They identify three kinds of resource scarcity. Firstly, demand-induced scarcity, or scarcity produced by population growth and rising per capita income creating increased consumption, originates in the domestic development path of capitalist states who have become increasingly industrialized, relying on affordable energy for subsequent growth. As

domestic stocks decline, dwindling reserves, the lack of new stock discoveries, combined with old technologies unable to transform minerals into energy, add supply-induced scarcity. This kind of scarcity means that domestic demand (which is often creating the depletion of domestic stocks) can no longer be settled by domestic supply. These dynamics will be expanded upon in the case of China and it will be shown that, as China goes beyond its national borders to secure a match between supply, demand and domestic growth, states who have control over foreign reserves form a possible additional impediment to supply security. They have the possibility to create what is called structural scarcity, that happens when a third party has the ability to detain others from receiving. This third party can be a block (for instance OPEC) but also a country, for instance the United States. Structural scarcity can be used during interstate rivalries, but it can also serve as a political tool with which the access-holding party can try to influence others, without attempting to impose un-reversible damage.

1.4 Hypotheses and operationalization

This study aims to see how power projection – conceptualized as CNPC’s involvement in Kazakhstan and Turkmenistan in the form of acquisitions through financing and investments and classical state-tools such as diplomacy or security measures – operates in two specific cases. This consequently provide insight into China’s energy-supply-security measures in these cases. The literature review and theoretical underpinning have led to the following expectations about China’s abilities to enhance its supply security in our cases:

1. Within the ideal-type of an authoritarian state-society-market complex, the separation between state and market is

posited to be dismal, in contrast to liberal state-society-market complexes. Both Kazakhstan and Turkmenistan are

characterized by a centralized, Presidential system, without room for civil society to provide significant input, and

without room for private businesses to control key-sectors of the economy. These states therefore closely resemble the

authoritarian ideal type. China – although to a lesser extent than e.g. Turkmenistan – is also able to override civil

society demands and lacks large private enterprises in key sectors of the economy. As state-controlled NOCs are in all

cases the main actors operating the hydrocarbon sector, It can therefore be expected that the authoritarian nature of the

Chinese, Kazakh and Turkmen regimes facilitate Chinese geo-economic power projection, especially with regards to

CNPC’s position within the Turkmen and Kazakh energy sector, as it can be supported by tools of the Chinese state,

such as diplomatic visits by national leaders, or diplomatic agreements over energy sector cooperation.

2. As Kazakhstan and Turkmenistan have claimed domestic reform, it is possible that they have to some

extent diminished their resemblance to the ideal type of the authoritarian state. As these regime open up to domestic

and possibly foreign influences, the parties involved in the energy sector of Kazakhstan and Turkmenistan might have

diversified, resulting in a negative outcome for China’s energy security

To be able to affirm or reject these hypotheses, this research takes the Chinese state-market-military complex as its unit of analysis. Since the Chinese state is characterized by authoritarian rule, the state-class, or

Chinese energy supply security, the cases of Kazakhstan and Turkmenistan (2006-2016)

Graduate school of Social Sciences