Chinese national oil companies in Kazakhstan : implications for geopolitics and energy security

(1)

University of Amsterdam

Graduate School of Social Sciences

Chinese national oil companies in Kazakhstan

Implications for geopolitics and energy security

MSc Thesis Political Science: International Relations Research Project: The Political Economy of Energy

24 June 2016

Author: Supervisor:

S. (Simon) Spornberger Dr. M. P. (Mehdi) Amineh

(2)

(3)

3

This thesis studies the implications of Chinese energy investment in Kazakhstan with regards to geopolitics and energy security. China‘s rapidly increasing demand for imported fossil fu-els has forced its government to expand its energy policy beyond its national borders. In order to enhance its access to energy resources abroad, the Chinese government has been facilitat-ing the cross-border expansion of its national oil companies through diplomatic and financial support. Since 1997, China has built a strong political and economic partnership with re-source-rich Kazakhstan, as Chinese NOCs have gradually increased their cross-border in-vestment in the country‘s oil and gas sector. Assessing the increasing interaction between Chinese NOCs and other energy companies, the findings of this thesis suggest that Chinese energy investment in Kazakhstan has accelerated the integration of the global energy market. Viewing the cross-border expansion of China‘s energy sector mainly in geoeconomic terms, the results of this study indicate that the increasing number of alliances between Chinese NOCs and Western-based IOCs enhances the possibility of future cooperation between China and other major energy importers.

(6)

6

Acknowledgement

This thesis is the result of five months of research, data collection, writing and editing. It has been a period of intense learning on an academic and on a personal level. First and foremost, I would like to express my gratitude to my supervisor and mentor, Dr. Mehdi Amineh, whose guidance and personal dedication have enabled me to conceptualize and conduct this research. Through participating in his course ‗Energy and Geopolitics in Eurasia‘ in the first semester of my master‘s program, I developed the knowledge and interest that encouraged me to con-duct my own study on the subject. Also, I would like to thank my second reader, Dr. Kurt Radtke. Having been raised in a family that values critical thinking and academic learning, I would like to thank my parents for their support and confidence throughout my educational path. Finally, I would like to express my appreciation to my brother and my close friends for their continuous encouragement.

Simon Spornberger 24 June 2016

(7)

7

Map 1 – China

(8)

8

Map 2 – Kazakhstan

(9)

9

List of tables and figures

Tables

Table 2.1. The three main Chinese NOCs in numbers………..………….………. 33 Table 3.1. Kazakhstan‘s main oil and gas fields………..………..………... 43 Table 3.2. Presidential visits between China and Kazakhstan since 1992…………... 47

Table 3.3. Chinese investments in the Kazakh energy sector, 1997-2016…………...….. 51

Table 3.4. Chinese loans to Kazakhstan, 2008-2016……….. 53

Table 3.5. Selected energy-related loans from China to Kazakhstan, 2009-2014……….. 55

Table 4.1. Major joint ventures of CNPC and KMG in Kazakh upstream oil sector……. 59

Table 4.2. Shell and CNPC in numbers. ……… 63

Table 4.3. Cooperation and sales between CNPC/PetroChina and Shell since 1999…... 64

Figures

Figure 2.1. China‘s GDP and energy consumption, per capita, 1980 – 2012………….... 30 Figure 2.2. Governance structure of Chinese national oil companies……….... 36

Figure 3.1. Kazakh crude oil export destinations, 2014 ………... 44

Figure 3.2. Kazakh bilateral trade volume with China, 2004-2014……..……….. 48

Figure 3.3. Chinese foreign direct investment in Kazakhstan, 2001-2012………….…… 51

Figure 3.4. Volume of petroleum exports from Kazakhstan to China, 2004-2014...…….. 52

Figure 4.1. CNPC‘s acquisition at Kashagan, 2013……… 60

Figure 4.2. Shareholders at Kashagan oil field………... 62

Figure 5.1. GDP Growth in Kazakhstan, 2011-2016………. 69

Figure 5.2. Kazakh bilateral trade volume with the United States, 2005-2014………….. 72

(10)

10

List of abbreviations

BBC British Broadcasting Corporation bbl/d Barrels per day

CDB China Development Bank CEO Chief Executive Officer China ExIm Export-Import Bank of China CIA Central Intelligence Agency

CIS Commonwealth of Independent States

CITIC China International Trust and Investment Corporation CNOOC China National Offshore Oil Corporation

CNPC China National Petroleum Corporation COD Central Organizational Department CPC Communist Party of China

EEU Eurasian Economic Union

EIA Energy Information Administration

EU European Union

FDI Foreign Direct Investment GDP Gross Domestic Product IEA International Energy Agency IMF International Monetary Fund IOC International Oil Company IPE International Political Economy IR International Relations

JV Joint Venture

KDB Kazakhstan Development Bank

KMG Kazmunaygaz

kWh Kilowatt hour

LNG Liquefied natural gas MCI Ministry of Coal Industry MNC Multinational Corporation MOF Ministry of Finance

MOFA Ministry of Foreign Affairs MOFCOM Ministry of Commerce

(11)

11

NDRC National Development and Reform Commission NEA National Energy Administration

NEC National Energy Commission NOC National Oil Company NPC National People‘s Congress

OECD Organization for Economic Cooperation and Development ONGC Oil and Natural Gas Corporation

Politburo Political Bureau

PRC People‘s Republic of China PSA Production Sharing Agreement PSC Production Sharing Contract

SASAC State-Owned Assets Supervision and Administration Commission SCO Shanghai Cooperation Organization

SDPC State Development and Planning Commission Sinopec China Petroleum and Chemical Corporation SOE State-Owned Enterprise

Tcf Trillion Cubic Feet

TNC Transnational Corporation

UN Comtrade United Nations Commodity Trade Statistics Database UNCTAD United Nations Conference on Trade and Investment US the United States of America

(12)

12

Chapter 1 - Introduction

1.1. Overview of the research

China‘s rapid economic rise of the past decades has boosted its thirst for energy and made it a net importer of fossil fuels. With its massive population of 1.3 billion, China has become the world‘s largest consumer of energy and the second largest consumer of crude oil. As its GDP continues to grow at a rapid pace, China‘s consumption of oil, gas and coal is expected to grow further in the coming years. Following these developments, energy security has become a major challenge for the Chinese government, which has been seeking to strengthen ties with supplier countries and diversify its imports. As a consequence, Chinese national oil compa-nies (NOCs) have gradually expanded their cross-border activities in resource-rich countries around the globe.

With its location in China‘s immediate neighborhood and its vast fossil fuel resources, Ka-zakhstan has become a key target country for Chinese energy investment. Since 1997, Chi-nese NOCs have acquired a significant volume of assets in the country‘s oil and gas sector. With its high share of foreign direct investment (FDI) in the Kazakh energy sector, China has established a strong political and economic presence in Kazakhstan, as its NOCs operate side-by-side with Kazakh, Russian and Western-based energy companies. As the Caspian region contributes a significant share to the world energy supply, China‘s increasing presence in Ka-zakhstan is expected to have consequences in terms of geopolitics and energy security on a regional and global level.

This master thesis attempts to analyze the geopolitical and geoeconomic implications of Chi-nese national oil companies‘ (NOCs) investments in Kazakhstan between 1997 and 2016. The following chapter will assess (1) the nature of Chinese NOCs and their relationship with the government, (2) the Sino-Kazakh energy partnership as well as (3) the relationship of Chinese NOCs with national and international energy companies in Kazakhstan. The overarching goal is to analyze the (4) implications of these issues for geopolitics, energy security and the global energy market.

Based on the described objectives, this study‘s research interest can be summarized by the following question: „What are the geopolitical and geoeconomic implications of Chinese

na-tional oil company investments in Kazakhstan and what is the nature of their cross-border expansion?‟ This question can be divided into the following sub-questions.

(13)

13

1. What is the nature of Chinese NOCs and their relationship with the Chinese govern-ment?

2. What are China‘s foreign policy objectives towards Kazakhstan and what is the nature of Sino-Kazakh energy relations?

3. What is the nature of Chinese NOCs‘ cross-border expansion in Kazakhstan with re-gards to their relationship with other national and international energy companies? 4. To what extent has Chinese energy investment in Kazakhstan contributed to the

trans-national integration of the global energy market?

5. What are the geopolitical and geoeconomic implications of Chinese NOC investments in Kazakhstan?

Broadly speaking, the first three sub-questions are aimed at providing a profound understand-ing of Chinese NOC investment in Kazakhstan with related policy tools, strategies and corpo-rate alliances while the fourth and fifth sub-questions attempt to place these issues within the context of energy security and geopolitics. The overall timeframe for this study is the period between 1997 and 2016, from the year of the first Chinese energy investment in Kazakhstan until today. The main social entities and actors under study are the Chinese and Kazakh gov-ernments, Chinese and Kazakh national oil companies as well as private-based international oil companies active in Kazakhstan, specifically the Chinese National Petroleum Corporation (CNPC), the Kazakh national oil company Kazmunaygaz (KMG) and the Dutch/British-based international oil company Shell. Other relevant actors are the governments of the United States and Russia as major powers in the region.

This proposed research is socially relevant for a number of reasons. Firstly, China‘s quest for foreign oil and the following cross-expansion of Chinese NOCs in resource-rich countries across the globe have implications for the global energy market and global energy security. Therefore, it is crucial to study China‘s foreign energy policy and the overseas investments of its NOCs. Secondly, the topic of this research is related to the broader context of China‘s transformation from a developing to an industrialized country and addresses the general ques-tion on the transnaques-tionalizaques-tion of the Chinese economy in general and that of Chinese NOCs in particular. Thirdly, as China‘s NOCs are rapidly increasing their cross-border activities, studying their relationship with other national and international oil companies contributes to the crucial debate on the nature of Chinese NOCs and to the geopolitical and geoeconomic implications of their cross-border activities. Located in the heart of Central Eurasia, both the United States and Russia have vital geostrategic interests in Kazakhstan. At the same time,

(14)

14

Kazakhstan supplies a significant share of the European Union‘s crude oil imports. Through analyzing the investments of Chinese NOCs in Kazakhstan and their relationship with private IOCs, this study discusses the crucial issue of energy supply security from Kazakhstan and its future possibilities and impediments, addressing the overall question of whether China‘s rise will lead to increasing conflict or cooperation in the future.

1.2. Literature review

This research revolves around the concept of energy security, which Yergin (1988) defines as ―the availability of energy at all times in various forms, in sufficient quantities and at reason-able or affordreason-able prices, without an unacceptreason-able or irreversible impact on the environment‖. Winzer (2012: 36) defines energy security as the ―continuity of energy supplies relative to demand‖. Similarly, Ang et al. (2015) discuss a variety of studies conducted on the subject and point at the broad scope of conceptualizations currently used within the scholarly debate on energy security, while Umbach (2010) discusses the interconnection between traditional, purely economic approaches to energy security and more recent, increasingly strategic ap-proaches focusing on security and stability.

Following China‘s rapidly increasing energy demand and fossil fuel import dependence in the past decades, a number of scholars have given particular attention to China‘s energy security. In their analysis of China‘s main energy security challenges, Cao and Bluth (2013) suggest that China‘s future energy policy will significantly affect its overall geopolitical grand strate-gy. In an earlier study, Manning (2000) discusses the Chinese shift from an economic to a strategic approach to its energy policy. Cheng (2008) provides a comprehensive analysis of China‘s strategy of securing access to resources through diplomacy rather than purchase on the international market, although Lee (2012) points out that China still covers most of its imported oil supply from openly traded markets. Zhang (2011) discusses China‘s current reliance on the Malacca Strait for nearly three-quarters of its crude oil imports and the resulting incentive for China to create direct pipeline links with countries in its immediate neighborhood, although Leung (2011) suggests that the contribution of pipelines to China‘s energy security should not be overstated.

On an economic level, several scholars have focused on the role of Chinese national oil com-panies for China‘s energy security on a domestic and international level. Significant attention has been given to the relationship of Chinese NOCs with the government, with a number of scholars arguing that Chinese NOCs act according to government interests (Liao, 2015;

(15)

Mat-15

tlin, 2009; Taylor, 2012) while others have suggested that they are growing increasingly inde-pendent, particularly in their overseas activities (Chen, 2008; Downs, 2010; Jiang and Sinton, 2011; De Graaff, 2014). Dumbaugh and Martin (2009), Lawrence (2013), as well as Law-rence and Martin (2013) have attempted to describe the overall political structure of China while Ding (2014) and Teets (2013) have analyzed contemporary Chinese state-society rela-tions. Addressing China‘s energy policy in relation to its NOC activities, Wu (2014) con-cludes that the Chinese government has been actively promoting the overseas investment of its NOCs through political support. The transformation of Chinese national oil companies into fully-integrated and internationally active corporations has been referred to as

transnationali-zation, which De Graaff (2012; 2014) has addressed in several works. Both Jiang and Sinton

(2011) and Jiang and Ding (2014) provide comprehensive overviews on Chinese NOC over-seas investment, showing the gradual increase of their cross-border acquisitions and activities over the past decades, and Amineh and Yang (2014) have placed the subject within the con-text the ongoing economic globalization process. Moreover, Salidjanova (2011) links the overseas investments of Chinese state-owned companies to the government China‘s ‗going-out policy‘. Alves (2013), Bräutigam and Gallagher (2014) and Downs (2011) discuss the role of Chinese state-owned banks as development financiers, often accompanying state-owned enterprises (SOEs) in their cross-border expansions.

A major issue within the debate on the transnationalization of Chinese NOCs has been their relationship with other energy companies, in particular private-based IOCs. De Graaff (2011) suggests that the rise of non-triade (United States, Europe, Japan) oil companies in recent decades has caused an increasing transnationalization of the global energy market following the growing number of alliances between state-owned and private energy companies. In a later study focusing on Chinese NOCs, De Graaff (2014) suggests that their cooperation with IOCs has increased rapidly, accelerating the integration of the global oil and gas sector. The issue of IOC/NOC relations is directly connected to the concept of resource nationalism, which refers to the assertion of governmental control on domestic natural resources, as dis-cussed by Stevens (2008) and Wilson (2015). Vivoda (2009) states that growing resource na-tionalism has limited the possibilities of IOCs for investment while noting that they have nev-ertheless remained highly profitable. The increasing importance of national oil companies for the global oil market has been studied by Pirog (2007), though Eller et al. (2011) have shown that they remain significantly less efficient than their private-based counterparts.

(16)

16

Since Chinese NOCs started investing in Kazakhstan in the late 1990ies, several scholars have studied China‘s foreign policy towards Central Asia in general and Sino-Kazakh energy rela-tions in particular. Valeev and Kadyrova (2015) provide an overview of the two states‘ dip-lomatic relationship since 1991. At the early stage of Chinese energy efforts in the region, Christoffersen (1998:3) states that ―pipelines through China from Central Asia and Russia would help to diversify Northeast Asian energy supply—reducing the region‘s dependence on supplies from the Middle East‖ while Andrews-Speed and Vinogradov (2000: 397) point out that China‘s energy interests in Central Asia are complemented by a ―range of political, economic, and security concerns‖. More recent studies have been conducted by Rosseau (2013), Saurbek (2008) and Sheives (2006), focusing on the possibilities and impediments of Sino-Kazakh relations within and beyond energy-related issues, while O‘Neill (2014) as well as Kalyzhnova and Lee (2014) assess how the Chinese government assists its NOCs in securing their investments in Kazakhstan through foreign policy support. In a comprehensive analysis of Chinese NOC investments in Russia and Kazakhstan, Cutler (2014) suggests that China‘s ties with Kazakhstan have gradually increased but remain constrained by Ka-zakhstan‘s ‗multi-vector foreign policy‘.

Analyses of Kazakhstan‘s political economy and its oil and gas sector have been conducted by several scholars. Olcott (2010), Schatz (2008) and Ziegler (2010) provide analyses of the power structure, state-market relations and authoritarian rule in Kazakhstan. Ostrowski (2010) studies the connection between the Kazakh ruling elite and the oil sector, identifying a pattern of what he refers to as ‗patron-client relationships‘. Kaiser and Pulsipher (2007) analyze the Kazakh government policy with a focus on petroleum legislation and obstacles to foreign in-vestment, while Yenikeyeff (2008) provides an overview of the Kazakh gas sector. Ka-zakhstan‘s strategy of fostering energy relations with both the European Union and China while maintaining a strong bond with Russia as well as ties with the United States has been referred to as a ‗multi-vector foreign policy‘, as discussed by, among others, Ipek (2007) and Hanks (2009). In their comparative study of resource nationalism in Russia and Kazakhstan, Domjan and Stone (2010) suggest the Kazakh government‘s involvement in the energy sector follows mainly economic interests while Russian resource nationalism is rooted in geopoliti-cal objectives. Other studies on Kazakh resource nationalism have been conducted by, among others, Cutler (2012) and Sarsenbayev (2011).

The geopolitical landscape of Central Asia has been studied by, among others, Edwards (2003), Kleveman (2007) and Kubicek (2013) while Stegen and Kuznir (2015) analyze the

(17)

17

increasing influence of China in the region. The United States‘ post-Afghanistan policy to-wards Central Asia has been discussed by Mankoff (2013) and Rumer et al. (2016) who as-sess possibilities and impediments for U.S. interests, while Raphael and Stokes (2014) ana-lyze the U.S. energy strategy in the region. Kim and Blank (2013), as well as Kim and Indeo (2013), address the issue of Sino-Russian relations in the regional context of Central Eurasia. With regards to regional frameworks for cooperation, Bailes et al. (2007) and Schneider (2013) have studied the Shanghai Cooperation Organization while Godehardt (2014), Sum-mers (2016), Verlare and van der Putten (2015), as well as Zhang (2015) have assessed Chi-na‘s ‗New Silk Road‘ strategy. Studying the consequences of ChiChi-na‘s energy quest for global energy security, Amineh and Yang (2012) challenge the dominant perception of China and the European Union being competitors in energy issues. Similarly, Zhang (2012) suggests that China and the West share a common interest in a stable global oil market and reliable supply, arguing that China‘s overseas oil and gas acquisitions have hardly enhanced its energy securi-ty. This view is shared by Dadwal (2007) who argues that more cooperation between China and other consumer countries will be necessary to secure energy supply in the future.

The presented scholarly work offers a broad overview of Chinese energy security, Chinese NOCs, Sino-Kazakh relations, the transnationalization of Chinese NOCs and the implications of China‘s energy quest for geopolitics and energy security in Central Asia. However, much of the literature applies either a strictly geostrategic or a strictly economic perspective. Fur-thermore, the implications of the transnationalization of Chinese NOCs and their relationship with private IOCs have not been sufficiently addressed. As the focus of this research is the study of Chinese NOC investments in Kazakhstan‘s, it contributes to the scholarly literature on the transnationalization of Chinese national oil companies. By analyzing the relationship between Chinese NOCs and private IOCs, this study fills the gap currently existing in the scholarly debate on the nature of Chinese national oil companies and the implications of their cross-border activities. In doing so, it furthermore adds to the understanding of China‘s for-eign energy policy and its relations with Kazakhstan in questions of energy and beyond. Fi-nally, this research connects Chinese NOC investments in Kazakhstan with regional geopolit-ics and energy security, attempting to identify the geopolitical and geoeconomic conse-quences of China‘s energy quest. In doing so, it complements the existing scholarly literature on the crucial question of whether China‘s economic rise will lead to more cooperation or confrontation with other major powers in the future.

(18)

18

1.3. Theoretical and conceptual framework

The presented research will make use of several concepts in order to place the subject within a theoretical framework. Firstly, the resource-scarcity model provides the foundation for con-necting resource-dependent China with resource-rich Kazakhstan. Secondly, the concept of transnationalization will provide the context for understanding the increasing cross-border activities of Chinese NOCs, their changing relationships with other energy companies and the consequences of these developments. Finally, critical geopolitics will provide the overall framework for studying the logic behind Chinese NOC investments and their implications for energy security and geopolitics. The following paragraphs are going to briefly introduce the used concepts and put them into relation with one another. For this purpose, a brief outline of the scholarly debate as well as the most relevant elements of each concept will be presented.

Resource scarcity model

To begin with, the resource scarcity model of Amineh and Houweling (2007) helps explain the Chinese government‘s need to expand its energy policy efforts beyond its national bor-ders. The model distinguishes between three types of resource scarcity. Firstly, the authors define ‗demand-induced scarcity‘ as caused by population growth, rising per-capita income and technological change, which consequently leads to an increasing consumption of re-sources. ‗Supply-induced scarcity‘, on the other hand, is ―caused by the dwindling of stock‖ (p. 375). Finally, ‗structural scarcity‘ is defined as caused by the deliberate action of a power-ful actor. The authors suggest that the United States are at this point in time capable of induc-ing structural scarcity of crude oil for East Asia by blockinduc-ing shippinduc-ing routes through their maritime military power.

Clearly, China is facing increasing demand-induced scarcity, as its population, per-capita in-come as well as industrial production have been growing rapidly over the past decades and are expected to grow further (World Bank, 2016a). Despite increasing policy efforts to foster re-newable energy (Ma et al., 2010), fossil fuels accounted for more than 90% of China‘s energy consumption in 2012 (U.S. EIA, 2015a). Consequently, China is seeking to gain access to oil and gas assets abroad in order to maintain its level of economic growth and stability. The overseas acquisitions of Chinese NOCs are viewed as part of this effort. Furthermore, the risk of structural scarcity induced by the United States through blocking oil imports on sea encou-rages China to create direct pipeline links with resource-rich countries in its immediate neigh-borhood in order to enhance its energy supply security.

(19)

19

Overall, the resource scarcity model links China‘s industrialization process with its need for pursuing an active foreign energy policy in resource-rich countries such as Kazakhstan. In this research, Chinese bilateral trade, investment as well as diplomatic and security relations serve as indicators to assess China‘s efforts of countering its energy scarcity in Kazakhstan.

Transnationalization of national oil companies

Since the late 1990ies, Chinese national oil companies have steadily expanded their cross-border activities around the globe, raising questions on their impact on the international geo-political order. Within the scholarly debate on globalization and internationalization, the im-pact of transnational corporations (TNCs) on world politics has been widely discussed, focus-ing initially on the positive or negative effect of foreign direct investment (FDI) by TNCs on host countries. While there has been little consensus within the scholarly debate about the concept of globalization and its consequences, there has been some agreement on the increas-ing influence of transnational actors in the international system. Referrincreas-ing to their causes, O‘Brien and Williams (2007: 183) suggest that ―the rise and development of TNC is to be understood as the result of a changing political, economic, technological and managerial con-text‖. This ‗transnationalization of governance‘ has changed the nature of international rela-tions, as ―transnational nonstate actors develop political regulations and activities without being formally authorized by states‖ (Zürn, 2013: 410). The growing significance of TNCs is reflected by their capability of allocating capital and moving resources across borders (Risse, 2013). The concept of transnationalization has been linked to Mercille‘s (2008) ‗logics of power‘ and Harvey‘s (1985) works on the ‗geopolitics of capitalism‘, who argue that the capi-talist system tends to expand geographically. In the context of Harvey‘s ‗spatial fix‘ and Mercille‘s ‗geoeconomic logic‘, the increasing cross-border activities of large corporations are viewed as a response to capital overaccumulation within a state.

In recent years, a scholarly debate on the transnationalization of Chinese national oil compa-nies has emerged, which De Graaff (2014: 547) defines as ―the extent to which they (the NOCs‘) engage in cross-border alliances and/or involving private partners‖. The transforma-tion of Chinese natransforma-tional oil companies from purely domestic state-owned enterprises (SOEs) to globally active players has been the result of a number of governmental reforms as well as political and economic developments (Amineh and Yang, 2014).

As this research aims at studying the relationship of Chinese NOCs with both the Chinese government and with other energy companies in Kazakhstan, the concept of

(20)

transnationaliza-20

tion helps understand the changing nature of Chinese NOCs as well as their influence on the global energy market.

Critical geopolitics

Critical geopolitics is a broad set of theories which share the commonality of deconstructing discourses and practices of classical geopolitics. The school is rooted in critical theory and scholars of the Frankfurter Schule such as Horkheimer, Adorno, Habermas and Faucault (Kelly, 2006), whose stream of thinking was applied to the study of international relations by Robert Cox (1981) in his article ‗Social Forces, States and World Orders: Beyond Interna-tional Relations Theory‘. Since then, a number of scholars have utilized critical theory to cri-ticize the grand theories of realism and liberalism from both positivist and post-positivist perspectives.

As part of this debate, critical geopolitics assumes that intellectuals and scholars construct ideas about places, which have influence and reinforce their political behaviors and policy choices, which in turn affects how people process their own notions of places and politics. Broadly speaking, the school of critical geopolitics can be divided into three main streams of thinking. The first group of scholars has been focusing on culture as the determining variable, bringing forward theories such as Anderson‘s (1983) concept of ‗imagined communities‘ which are socially constructed as they are not based on face-to-face interaction between their members. The second main line of argument is based on the analysis of discourses, with scho-lars such as Dodds (1994) studying the decision-making level as the main unit of analysis, assessing narratives, concepts and practices of geopolitical discourses. Finally, the third and most recent stream of critical geopolitics has included the study of international political economy (IPE) into the analysis of geopolitics from a critical IR perspective.

In their important book ‗Mastering Space: Hegemony, Territory and International Political Economy‘, Agnew and Corbridge (1995) suggest a shift of focus in the study of geopolitics away from territory towards capital flows, arguing that in light of increasing transnational integration of markets, the classical, state-centered approach to geopolitics is no longer suffi-cient. In a later publication, Agnew (2003) connects the issue of US hegemony with its ability to control capital flows outside national borders. Addressing the subject of US foreign policy, Mecille (2008) presents an interpretation of ‗radical geopolitics‘ following a geopolitical and a geoeconomic logic, arguing that in the post-Cold war period, economic forces dominate state policy while at the same time the capitalist state retains a degree of relative autonomy.

(21)

21

Based on Harvey‘s (2001) ‗logic of power‘, Mercille views the process of policymaking as a tension between the interests of, firstly, capitalists and secondly, state managers, arguing that the two groups are dependent on each other, as the state relies on capitalists to maintain eco-nomic growth in order to assure their survival, while capitalists rely on the state to maintain a business-friendly environment through economic governance.

It becomes apparent that the interdependence of political and economic forces in the cross-border expansion of Chinese national oil companies and its consequences is best understood through the third strand of critical geopolitics. As Realism neglects the influence of non-state actors in international relations (Donnelly, 2000), it is not suitable to study the transnationali-zaton of Chinese NOCs. Liberal IR theory, on the other hand, assumes that there is a clear distinction between state and market forces (Doyle, 1986), which certainly does not apply to China‘s current state-society structure, as in China‘s state-led industrialization process, the government retains a strong grip on the country‘s economy. At this point, it is necessary to note that Agnew‘s and Mercille‘s conceputalizations of critical geopolitics are based on the liberal state-society structure of the United States. Therefore, the second chapter of this re-search is dedicated to the conceptualization of power structure, state-market relations and go-vernance of national oil companies in China.

In response to demand-induced scarcity, this research assumes that Chinese NOCs serve as tools of the Chinese government for the pursuit of energy policy outside its national borders. Therefore, their overseas investments are a reflection of the Chinese government‘s interests regarding energy security. As conceptualized by Amineh and Houweling (2010), the Chinese state class is exposed to lateral pressures from socio-economic demand and market forces, which push it to secure the access to natural resources and markets abroad. By facilitating the cross-border investments of its national oil companies, China projects power to secure the access to natural resources in order to maintain credibility at home and secure its wealth-power structure (Amineh and Yang, 2014). Therefore, this research views the investment of Chinese NOCs in Kazakhstan as a reflection of China‘s foreign energy policy objectives. Furthermore, it is expected that the investments of Chinese NOCs have implications for other major powers in the region on both a geoeconomic and geopolitical level. In particular, the United States and Russia have wide-ranging geostrategic interests in Central Asia, while the U.S. and the European Union are dependent on energy imports from the Caspian Region fol-lowing demand-induced scarcity. Furthermore, the activities of Western-based IOCs are af-fected by the ongoing transnationalization of national oil companies across the globe.

(22)

There-22

fore, this research attempts to analyze the implications of Chinese NOC investment in Ka-zakhstan both on a geopolitical and geoeconomic level.

Overall, the presented interpretation of critical geopolitics combines elements of IR and IPE theory and therefore provides the most suitable framework for the study of Chinese national oil companies, their relations with private international oil companies and the implications of their investments and relationship. In focusing on the relevant forces constraining the actions of the main social entities under study, this theoretical framework helps better understand the subject and provide a full assessment of Chinese energy supply security from Kazakhstan and the geopolitical and geoeconomic implications of Chinese energy investment.

1.4. Outline of the argument and hypotheses

The research question ‗What are the geopolitical and geoeconomic implications of Chinese national oil company investments in Kazakhstan and how can we understand their cross-border expansion?‘ contains two variables. The independent variable is the investment of Chinese NOCs in Kazakhstan, while the dependent variable is the geopolitical and geoeco-nomic implications of these investments. Based on this interdependence, the following para-graphs will apply the presented set of theories to the previously listed sub-research questions to deduct hypotheses which comprise this work‘s main line of argument.

Firstly, this research views the cross-border expansion of Chinese NOCs in the context of the ongoing economic globalization and integration of China into the global economy. As China‘s industrialization process has created a demand-induced scarcity of fossil fuels, lateral pres-sures from socio-economic demand and market forces push the Chinese government to secure access to markets and energy resources outside national borders. Consequently, the Chinese government facilitates the overseas investment of its NOCs. Thus:

Hypothesis 1: As China faces increasing energy scarcity, Chinese national oil companies

serve as tools for the Chinese government to enact its energy policy abroad.

Then, considering the Chinese government and Chinese NOCs as a unitary actor, the invest-ments of Chinese NOCs in Kazakhstan are viewed as an effort of the Chinese ruling elite to access natural resources outside its national borders in response to lateral pressures and re-source scarcity. Consequently, the cross-border expansion of Chinese NOCs in Kazakhstan follows mainly geoeconomic objectives. Thus:

(23)

23

Hypothesis 2: During the period under study, China has built a strong bilateral partnership

with Kazakhstan based on increasing energy-related trade, investment, and finance in order to enhance its access to Kazakh energy resources.

Then, as Chinese NOCs have been gradually expanding their cross-border activity and turning into transnational actors, they are entering new forms of alliances with other national and in-ternational energy companies. Thus:

Hypothesis 3: It is expected that during the period under study there has been an increase in

cooperation between Chinese NOCs, other NOCs and Western-based IOCs in Kazakhstan.

Then, as Chinese NOCs are increasingly interacting with Western-based IOCs as part of their transnationalization process, they create new forms of cooperation between private and state-owned enterprises which change the nature of the global energy market. Thus:

Hypothesis 4: It is expected that during the period under study, Chinese investment in the

Kazakh energy sector has accelerated the integration of the global energy market.

Then, as China‘s policy efforts towards Kazakhstan are mainly focused on energy trade and investment, its geoeconomic power projection does not pose a geostrategic threat to other major powers in the region. On the contrary, the increasing number of alliances between Chi-nese NOCs and Western IOCs reflect the mutual interest China and other major energy im-porters in the region have. Thus:

Hypothesis 5: It is expected that the increasing interaction between Chinese NOCs and IOCs

in Kazakhstan increases the future possibility of cooperation between China and other major powers.

To sum up, this work assumes that Chinese NOCs serve as policy tools of the Chinese gov-ernment. Therefore, their steadily growing cross-border investments reflect Chinese energy policy interests. Furthermore, Chinese NOCs are increasingly cooperating with other energy companies in Kazakhstan, which accelerates the integration of the global energy market. As China‘s involvement in Kazakhstan follows mainly geoeconomic interests, it does not pose a geopolitical threat to other major powers in the region. Therefore, the interaction between Chinese NOCs and other energy companies enhances the possibility of future cooperation.

(24)

24

1.5. Research method and operationalization

Regarding sources, this research is based on secondary data from international institutions and think tanks, primary resources from governments and corporations as well as the main scho-larly contributions to the academic debates in the English and German languages. Firstly, a detailed account of China‘s and Kazakhstan‘s energy situation will be given based on the country reports of the U.S. Energy Information Administration (EIA) and the World Energy Outlook of the International Energy Agency (IEA). Specific information on China‘s per capita energy consumption, GDP growth and other economic indicators will be derived from data-bases provided by the World Bank and International Monetary Fund (IMF). For the assess-ment of the Sino-Kazakh economic partnership, several databases such as those provided by UN Comtrade, UNCTAD, and China Aid Data will be consulted. These quantitative figures will be complemented by a number of primary sources from governments and companies. China‘s energy policy will be assessed by studying its 2012 Energy Policy White Paper and its 2014 Energy Development Strategy Action Plan. The assessment of Chinese NOCs‘ inte-raction with other energy companies in Kazakhstan will be mainly based on the recent annual reports and company data of CNPC, Sinopec, Kazmunaygaz and Shell as well as reports from highly reputed international business publications such as Bloomberg, Reuters, Wall Street Journal and the specialized Oil and Gas Journal. Moreover, public statements from high-ranked state officials or company leaders will be reviewed. Specific information on Ka-zakhstan and Central Eurasia will be derived from the Jamestown Foundation‘s ‗Eurasia Dai-ly Monitor‘. FinalDai-ly, every section will discuss the main scholarDai-ly contributions on the issue, covering a variety of specialized monographs, book chapters and peer-reviewed articles from the English and German-speaking academic debates.

Regarding methodology, this research applies a mixed approach of quantitative and qualita-tive methods, depending on the specific operationalization of the sub-research questions. The first part of this work addresses the nature of Chinese NOCs and their role for China‘s energy policy, for which the ‗resource-scarcity model‘ serves as a theoretical framework. Through a qualitative analysis of the formal and informal ties between the government and the NOCs, the level of dependence between the two will be assessed. The second sub-question of this research is concerned with Sino-Kazakh energy relations, studying both geoeconomic and geopolitical factors as conceptualized in Mercille‘s interpretation of critical geopolitics. Firstly, diplomatic relations will be assessed by studying the frequency and outcomes of pres-idential state visits since 1991. Economic relations will be assessed through a quantitative

(25)

25

analysis of bilateral flows in trade, investment, and finance using the previously mentioned databases. Finally, cooperation on the security level will be assessed through joint military exercises, bilateral arms trade and participation in international security frameworks such as the Shanghai Cooperation Organization. The third and fourth sub-questions address the trans-nationalization of Chinese NOCs, which will be analyzed by two case studies on CNPC‘s cooperation with other energy companies in Kazakhstan. Firstly, the relationship of CNPC with Kazakhstan‘s main national oil company KMG will be assessed through a qualitative review of the 2013 purchase at the Kazakh oil field of Kashagan. Then, the relationship of CNPC with Dutch-British-based Shell will be studied through a qualitative assessment of all joint ventures, production sharing agreements and sales between the two companies worldwide. Based on the theoretical framework of Chinese NOCs‘ transnationalization, the consequences of these developments for the global energy market will be discussed. The final part of this research will study the geopolitical and geoeconomic implications of Chinese NOCs investments in Kazakhstan by analyzing the interests and strategies of other major powers in the region, in particular the United States and Russia. Furthermore, it will attempt to measure the consequences of Chinese NOC expansion in Kazakhstan for energy security and the global energy market by reviewing competing European, Russian and Chinese pipe-line projects. Overall, this work will provide a comprehensive overview of Chinese NOC in-vestment in Kazakhstan and its implications for geopolitics and energy security.

1.6. Structure of work

As presented in the previous sections, my thesis is structured into four main parts. After an introductory chapter, chapter II focuses Chinese NOCs, their nature, and their relationship with the government. Chapter III studies Sino-Kazakh relations on a political, economic and security level and also presents an overview of the Kazakh oil and gas sector. Chapter IV dis-cusses the relationship of Chinese NOCs with other national and international oil companies in Kazakhstan. Chapter V will connect the results of the previous chapters and link Chinese NOC investments in Kazakhstan with energy security and geopolitics. Finally, the concluding chapter will review the findings with regards to the theoretical framework and hypotheses and present the overall conclusions of this research.

(26)

26

Chapter II – State-market relations of China’s energy sector

2.1. Introduction

Since the late 1970ies, China has transformed from an underdeveloped into a rapidly indu-strializing state. In an ongoing and gradual reform process, the Chinese government has been opening its market to foreign investment, boosting manufacturing, exports and urbanization. This economic rise has increased China‘s demand for natural resources, in particular fossil fuels. Since China turned into a net importer of crude oil in 1993, securing the access to ener-gy resources from abroad has been a key challenge for the Chinese government. As the Chi-nese state has retained a strong grip on the country‘s economy, China‘s energy sector is pre-dominantly state-owned. Therefore, it is necessary to understand the interplay of state and market forces in China in order to understand its energy strategy and the cross-border expan-sion of its national oil companies.

Having laid out the overall framework of this research in chapter I, the aim of this chapter is to introduce state-market relations in China, discuss the country‘s energy situation and ana-lyze the role of national oil companies for its energy security. In doing so, this chapter ad-dresses the sub-question ‗What is the nature of Chinese NOCs and their relationship with the Chinese government?‘ The following pages are going to (1) discuss the power structure in contemporary China, (2) introduce China‘s energy situation based on its rapid industrialization process, (3) analyze the nature and governance of China‘s national oil companies and (4) address the ‗going-global strategy‘ of China‘s energy sector.

Overall, this chapter will provide the conceptual foundation for the following analyses of Si-no-Kazakh energy relations in chapter III, the cross-border expansion of Chinese national oil companies in Kazakhstan in chapter IV and the geopolitical and geoeconomic implications of their investments in chapter V.

2.2. Power structure and state-society relations

Throughout the great part of the past 2000 years, China was an advanced nation and leading economic power in the world. From the 19th century, however, China experienced Western and Japanese imperialism which led to economic decline and political crises (Landsberger, 2014). After a perceived ‗century of humiliation,‘ the People‘s Republic of China (PRC) was established in 1949 after the victory of the Chinese Communist Party (CPC) in the civil war against the Kuomintang nationalist forces. Between 1953 and 1978, the new communist

(27)

lea-27

dership under Mao Zedong initiated a reform process which embraced all aspects of political, economic and social life (ibid). However, Mao‘s ‗Great Leap forward‘ resulted in mass fa-mine and death, and is widely considered a central planning disaster (An et al., 2001). Shortly after Mao‘s death, the year of 1978 marked the turning point in modern Chinese history, as the new paramount leader Deng Xiaoping began passing economic reforms which gradually transformed the Chinese economy from communism to state-led capitalism and led to ongo-ing and rapid economic growth. This reform process has reconverted China into a major polit-ical and economic power, the world‘s largest exporter (CIA, 2016) and second largest econo-my in terms of total GDP (World Bank, 2016a).

Since the establishment of the PRC in 1949, it has been under the sole rule of the Chinese Communist Party (CPC). While the reform process since the late 1970ies has fundamentally changed the country‘s economic system, the Communist Party‘s monopoly on power has re-mained. According to the 1982 constitution, the Chinese political system consists of several institutions which include the National People‘s Congress (NPC) as the main legislative body of China, the State Council as the main administrative authority, the State Central Military Commission, the Supreme People‘s Court and the Supreme People Procuratorate (Lawrence, 2013). However, there is a broad consensus that the de facto political system of China varies significantly from the official power division stated in the constitution, as the key figures of the CPC form an elite network which embraces all relevant political institutions in China (Dumbaugh and Martin, 2009). Consisting of more than 85 million members, the CPC is the largest political party in the world. Its constitution requires it to hold a congress every five years, the most recent on taking place in 2012. At every congress, the delegates vote a central committee, with currently 205 full and 171 alternate members. Among its members, the Cen-tral Committee elects at its first meeting a 25-person Politburo and a 7-person Politburo Standing Committee. One of the Politburo Standing Committee members is appointed Gener-al Secretary and serves as China‘s paramount leader (Lawrence, 2013). EssentiGener-ally, this group of seven high ranked officials controls all relevant political institutions in China. The current General Secretary, Xi Jinping, serves as China‘s president and Chairman of the State Military Commission, while the second-highest ranked member, Li Keqiang, serves as Premier presid-ing over the State Council (Lawrence and Martin, 2013). While the election of the Standpresid-ing Committee is officially conducted by the Central Committee, its members are in practice cho-sen by party elders and current leaders who engage in heavy horse trading to help their protégés and allies gain power (McGregor, 2010).

(28)

28

Traditionally, economic growth and nationalism have been the main sources of legitimacy for the Chinese authoritarian regime (Roskin, 2009). In recent studies, additional factors such as the provision of public goods or the maintenance of social stability have been identified (Breslin, 2009). While the PRC has a long history of suppressing social and oppositional movement by restricting freedom of expression and association (Perry, 2000), recent years have seen a shift in Chinese state-society relations towards a more open approach. Ding (2014: 81) states that during the recent modernization process, ―one of the significant devel-opments in Chinese society and politics is the dynamic growth of civil society organizations (CSOs) that manifest the interests and will of Chinese citizens.‖ Referring to a system of ‗consultative authoritarianism‘, Teets (2013) suggests that in present day China, the state al-lows the activity of civil society group that it considers useful while it continues to govern them through increasingly indirect forms of control.

Overall, the Politburo Standing Committee forms the heart of a small and powerful ‗ruling elite‘ or ‗state class‘ which dominates the Chinese Communist Party and, consequently, all politics in the CPC. Next to controlling the Chinese government, legislative, military and civil society, this small group of individuals executes significant power over the Chinese economy, which will be discussed in the following sub-section 2.4 on the nature and governance of Chi-nese national oil companies.

2.3. Industrialization and energy scarcity

Since the beginning of its economic reform process in 1978, China has transformed from an agrarian state to an emerging economy with a strong manufacturing sector, rapidly increasing international trade and a high inflow of FDI. These developments have changed China‘s ener-gy situation and turned it into a net importer of fossil fuels. In order to understand the chal-lenges of Chinese energy security today, the following paragraphs will discuss China‘s recent economic development and analyze the implications for its energy policy.

China‘s economic development since the late 1970ies has been impressive. Within a few dec-ades, the country transformed from an economically insignificant state into the world‘s second-largest economy in terms of total GDP (Zhu, 2012). In an ongoing reform process, the Chinese government opened the country‘s economy and transformed it from a strictly com-munist to a market-based system. The industrialization process was initiated at the National Party Congress in 1978, where the party leadership acknowledged that Mao‘s economic poli-cies had failed and that China was lagging not only behind Western economies but also rising

(29)

29

East Asian states such as Japan, South Korea or Singapore (MacFarquhar, 1987). However, the strategy of new leader Deng Xiaoping was not to privatize state-owned industries but to maintain the Communist Party‘s monopoly of power over state and economy while gradually opening the economy to elements of the free market (Dreyer, 2012).

Throughout its state-led industrialization process, the Chinese government has retained a strong grip on the economy, reflected by the large number and size of state-owned enterprises which have been estimated to account for around half of China‘s non-agricultural GDP (Sza-mosszegi and Kyle, 2011: 1). Consequently, state and market in China cannot be viewed as separate entities, like it is the case in liberal democracies. Instead, China‘s ―red capitalism‖ (Lin, 1997) or ―capitalism with Chinese characteristics‖ (Huang, 2008) constitutes a system in which the ruling elite dominates the state-led economy in order to sustain its power. Walter and Howie (2011:73) state that the ―economy […] is being carved up by China‘s rulers, their families, relations and retainers‖, adding that ―China‘s state-owned economy is a family business and the loyalties of these families are conflicted, stretched tight between the need to preserve political power and the urge to do business. To date, the former has always won‖. This tension between state control and commercial interest will be the key focus for the com-ing section‘s discussion on the governance of Chinese national oil companies, which comprise the heart of China‘s state-owned energy sector.

China‘s state-led development process has triggered an impressively rapid industrialization, as the country‘s GDP has grown at an annual rate of nearly 10% since the late 1970ies (World Bank, 2016a) and, despite a slowdown due to the global financial crisis, will continue to increase at a rate of well over 6% in 2016 (IMF, 2016a). Today, China is the world‘s second-largest economy in terms of nominal GDP and the second-largest in terms of GDP adjusted for the purchasing power parity (World Bank, 2016a). At the same time, China‘s economic rise since 1978 has led to rapid urbanization, as its massive population of currently 1.3 billion is increa-singly moving to the prosperous cities on the country‘s east coast. As China‘s economic rise has been fueled mainly by non-renewable domestic coal and oil resources, its energy produc-tion and consumpproduc-tion have increased rapidly since the 1970ies. The correlaproduc-tion between eco-nomic development and energy scarcity has been conceptualized by Amineh and Houweling (2007), who link the problem of ‗demand-induced scarcity‘ to population growth, rising per-capita income and technological change. Clearly, China is affected by all three factors, as its massive population of 1.3 billion continues to grow, its GDP per capita increased from below

(30)

30

Sources: World Bank (2016a), IEA (2015); Graph by author.

0,5 1,0 1,5 2,0 2,5 0 1 2 3 4 5 6 7 1980 1985 1990 1995 2000 2005 2010 1000 kg of oi l equival ent U S$ 1000

GDP per capita Per capita energy consumption

$300 in 1980 to $7.400 in 2014 (World Bank, 2016a) and much of its economy has shifted from agriculture to energy-intensive manufacturing.

The correlation between economic growth and energy scarcity is reflected by China‘s per ca-pita energy use, which nearly quadrupled from 598 kg of oil equivalents in 1981 to 2.079 kg in 2013. Within the same period, its per capita electricity consumption rose from 363 kWh to 3.475, showing a more than ten-fold increase in little more than three decades. In comparison, the 2013 per-capita energy use in the United States was at 6.909 kg of oil equivalent, more than three times as high as that of China (all figures: IEA, 2015). These numbers show that firstly, China‘s per-capita energy consumption has increased enormously since the beginning of the economic reform process and secondly, that it can be expected to increase further, con-sidering the expected economic growth, rising population size and increasing purchasing power in the coming years and decades.

Figure 2.1. China’s GDP and energy consumption, per capita, 1980 – 2012.

Following its enormous reserves, China has historically covered the majority of its energy demand with coal, which accounted for nearly 66% of China‘s total energy consumption in 2012. The second-largest sources are petroleum and other liquids, covering nearly 20%. The remaining share is made up by hydropower (8%), natural gas (5%), renewables (around 1%) and nuclear power (less than 1%; all figures: U.S. EIA, 2015a). While China covers most of its coal and a significant share of its gas demand through domestic production, the consump-tion of crude oil has exceeded producconsump-tion capacity in 1993, and the gap has since widened

(31)

31

increasingly. China has proven oil reserves of around 24.6 billion barrels, and its production has risen by 50% over the past two decades. The U.S. EIA (2012) predicts that China‘s oil production will further increase to over 4.6 million bbl/d by 2016, 5.5 million bbl/d by 2030, and 5.7 million bbl/d by 2040. At the same time, China consumed about 10.7 million barrels of crude oil in 2014 and its consumption is expected to grow further in the coming years and decades. Also, China surpassed the United States as the largest net importer of oil in 2013 (U.S. EIA, 2015a).

Clearly, the rising dependence on energy imports, in particular for crude oil, has major impli-cations for China‘s energy policy, as an uninterrupted supply of energy resources is crucial for the maintenance of economic growth and social stability, which are vital to the legitimacy of the Chinese ruling elite. Therefore, the Chinese government has adopted strategies to enhance the country‘s energy security in order to address the challenge of demand-induced scarcity and the rising dependence on energy imports. In its Energy Policy White Paper, the Chinese State Council (2012) lays out a comprehensive set of measures aimed at tackling the country‘s energy problem, among others the increasing of efforts in energy conservation, the expansion of the renewable energy sector, the fostering of clean fossil fuel energy, and institutional reforms of the energy sector. In its Energy Development Strategy Action Plan, the State Council (2014) announced a cap on the total primary energy use until the year 2020 as well as an increase of non-fossil fuel energy to 15% in the same year. Following its dependence on imported oil since 1993, China has expanded the scope of its energy policy beyond its nation-al borders, stating in its 2012 White Paper that:

“A fair and rational international energy management mechanism is a prerequisite for a stable global energy market [and] the international community should work collaboratively to maintain stability in oil producing and exporting countries, especially those in the Middle East, to ensure the security of international energy transport routes and avoid geopolitical conflicts that affect the world's energy supply” (China State Council, 2012: 24).

A clear reflection of China‘s new energy policy has been the high number of overseas acquisi-tions by Chinese national oil companies in resource-rich countries across the globe, often ac-companied by governmental support in terms of diplomacy, trade or finance (Chen, 2008; Wu, 2014). Furthermore, China has been seeking to construct oil and gas pipelines in its im-mediate neighborhood in order to counter risks of maritime supply routes (Zhang, 2011).

As part of China‘s effort to enhance its energy supply security, Chinese national oil compa-nies have taken the role of accessing oil and gas supplies from outside national borders. To

(32)

32

understand China‘s energy policy and its overseas energy investments, it is necessary to ana-lyze the nature of Chinese NOCs. Therefore, the following sub-chapter will discuss their his-tory, governance and their relationship with the central government.

2.4. The nature of Chinese national oil companies

Having conceptualized the power structure in China and the country‘s energy problem as a result of its rapid economic development in recent decades, it is necessary to discuss the state-market relations of China‘s oil and gas sector the governance of its main actors, Chinese na-tional oil companies. Therefore, the following paragraphs are going to lay out a brief history of the sector, discuss the emergence of Chinese national oil companies and assess their current relationship with the government.

2.4.1. Brief history

The development of the Chinese oil sector started in the 1950ies when the newly founded Ministry of Petroleum Industry (MPI) under the authority of the State Council was given the task of developing the country‘s petroleum sector. As the first oil discoveries were developed with Soviet support, Soviet-style central planning influenced the administration of China‘s oil industry during its early years (Kambara and Howe, 2007). After the collapse of the Sino-Soviet partnership, Mao‘s economic approach followed the concept of ‗self-reliance‘, and in 1963, Premier Zhou Enlai declared that ―China‘s oil is basically self-sufficient and the epoch of Chinese people using imported oil will be gone forever‖ (Kang, 2001). During this period, the Chinese energy sector remained under the strict administrative authority of the MPI. In 1970, the Ministry of Petroleum Industry, the Ministry of Coal Industry (MCI) and the Minis-try of Fuel and Chemical IndusMinis-try were merged but were a few years later dismantled back into an MPI and an MCI.

When Deng Xiaoping assumed power in 1978, the Chinese economy was on the verge of col-lapsing. As part of its economic system reforms, the Chinese government disbanded, among others, its Ministry of Petroleum Industry and its Ministry of Chemical Industry and incorpo-rated their profitable assets into state-owned enterprises (SOEs). This led to the foundation of the China National Offshore Oil Corporation (CNOOC) in 1982, which was mainly engaged in offshore upstream activities, the China Petroleum and Chemical Corporation (Sinopec) in 1983, mainly engaged in downstream activities, and the China National Petroleum Corporation (CNPC) in 1988, mainly engaged in onshore upstream activities (Downs, 2010). Although formally becoming corporations, the NOCs retained their ranks within the

(33)

minis-33

Source: CNPC, 2015; Fortune, 2015; Sinopec, 2016; Table by author. *numbers from 2014.

terial hierarchy and therefore remained subject to governmental control through the Ministry of Petroleum Industry. Before China‘s entrance of the World Trade Organization (WTO) in 2001, several reforms were put in place in the late 1990ies in order to prepare the NOCs for the market entry of international competitors. Firstly, the NOCs were restructured and entered a stage of limited competition with each other. Furthermore, the three main NOCs created subsidiaries on the Hong Kong and New York stock exchanges, making them subject to inter-national business trade legislation (Downs, 2010). During this process, Sinopec and CNPC gradually turned into vertically integrated companies, although their initial focus remained the same, with CNPC being the largest onshore producer largest onshore producer and pipeline constructor, CNOOC being engaged in offshore upstream production and Sinopec dominating refining and distribution (Downs, 2010; Jiang and Sinton, 2011). Today, Sinopec and CNPC are, by revenue, China‘s two largest SOEs and the world‘s second and fourth largest corpora-tions (Fortune, 2015).

Table 2.1. The three main Chinese NOCs in numbers.

Company Global Rank

2015 Revenue 2015 US$ billion Profits 2015 US$ billion Sinopec 2 311 8 CNPC 4 308 12.7 CNOOC 72 35.5* 9.8*

Following their origin as Chinese ministries and their complicated, non-transparent reform process and corporate development, relations between the Chinese government and its NOCs in terms of control and ownership have been subject to scholarly debate. Based on the pre-vious description of China‘s ruling elite, state-market relations and energy situation, the fol-lowing paragraphs will analyze the relationship between Chinese NOCs and the government.

2.4.2. Ownership and control

Within the scholarly literature on the governance of Chinese national oil companies, two main arguments can be distinguished. The first group states that the NOCs are a tool of the Chinese government which executes significant control over them (Liao, 2015; Mattlin, 2009; Taylor, 2012). The second group suggests that following their increasing overseas activities, Chinese NOCs have grown increasingly independent of the government (Chen, 2008; Downs, 2010;

Chinese national oil companies in Kazakhstan : implications for geopolitics and energy security

University of Amsterdam

Graduate School of Social Sciences