China’s thirst for oil : the case of Kazakhstan

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Bachelor Thesis

China’s thirst for oil

The case of Kazakhstan

Yinneke de Hoop Student ID: 10199101

Energy and Geopolitics in China and the European Union Supervisor: Dr. M.P. Amineh

Faculty of Social and Behavioural Science Amsterdam, 19 January 2015

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Cover photo: September 7th, 2013, Xi Jinping holds talks with President Nursultan

Nazarbayev of Kazakhstan to promote good-neighborly friendship, mutual benefit and win-win outcomes to deepen China-Kazakhstan comprehensive strategic partnership. Source:

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Map 1: The People’s Republic of China

Source: University of Texas, Perry-Castañeda Library, Map Collection, available online:

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Map 2: The Republic of Kazakhstan

Source: University of Texas, Perry-Castañeda Library, Map Collection, available online:

http://www.lib.utexas.edu/maps/commonwealth/kazakhstan.jpg

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Map 3: Existing key oil and natural gas pipelines in China

Source: PetroChina Company Limited, available online:

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Map 4: Existing pipelines within the Caspian Region

Source: EIA, Country Brief Analysis Caspian Region, online available at:

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List of figures

Figure 2.1: China’s coal production and consumption, 2000-2012 Figure 2.2: Top ten annual net importers, 2013

Figure 2.3: China’s oil production and oil consumption, 1993-2015 Figure 2.4: China’s and World’s High-Technology Exports (USD) Figure 3.1: Export and Import Shares of Kazakhstan’s Trade Partners Figure 3.2: Kazakhstan’s oil production and consumption, 2004-2014

List of tables

Table 2.1: China’s NOCs motivations and strategies Table 2.2: China’s NOCs in numbers

Table 3.1: Country profile Republic of Kazakhstan Table 3.2: Largest export routes in Kazakhstan, 2013

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List of acronyms

b/d Barrels per day

CCP Chinese Communist Party

CICA The Conference on Interaction and Confidence-building Measures in Asia

CNPC Chinese National Petroleum Corporation CNOOC China National Off shore Oil Corporation

EAEC Eurasian Economic Community

EAPC Euro-Atlantic Partnership Council

EIA Energy Information Administration

EIO Equity Oil Investment

EU European Union

FDI Foreign Direct Investment

GDP Gross Domestic Product

IEA The International Energy Agency

MAPs Membership Action Plans

mb/d Million barrels per day

MFA The Ministry of Foreign Affairs

NATO North Atlantic Treaty Organization

NDRC The National Development and Reform Commission

NOCs National Oil Companies

OPEC Organization of the Petroleum Exporting Countries

PfP Program for Partnership

PRC People’s Republic of China

SCO Shanghai Cooperation Organization

Sinopec China Petroleum and Chemical Corporation

SOEs State-owned enterprises

TNCs Transnational Oil Companies

US United States of America

USD United States dollar

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Acknowledgement

This thesis has not been made possible without the knowledge and support from my supervisor Dr. Mehdi Amineh who has helped throughout this whole process and for making me enthusiastic about this research topic. Before I started with my research I had little to zero knowledge of energy politics and geopolitics. Therefore, writing this thesis has been a great challenge for me but thanks to the guidance from Dr. Mehdi Amineh I have made it until the end. I would also like to show my gratitude to my second reader. Last, but not least, I am thankful for the unconditional support from my parents and friends.

Yinneke de Hoop, January 19th, 2015

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Abstract

China’s position boasting one of world’s largest economy brings prosperity and wealth to the country but at the same time complications have risen. Its increased demand for energy has led the Chinese government to change its policy to one that is more focused on the diversification of oil suppliers. China has now turned its eyes on Central Asia — Kazakhstan, in particular. This shift has not gone unnoticed by other major players in the region and this has raised question about the geopolitical consequences of China’s expansion to other oil-rich countries. By researching the diplomatic, economic and security relations between China and Kazakhstan, with a focus on the role of Chinese national oil companies (NOCs), this thesis analyses the geopolitical implications of China’s energy supply from Kazakhstan.

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Chapter I. Introduction

1.1 Introduction

The People’s Republic of China (PRC) is currently the center stage of attention in world politics and debates on international energy governance. In 2010 China had surpassed Japan to become the second largest economy in the world and is therefore one of the fastest growing world’s great powers (Leung, 2011: 1330). With over 1.3 billion inhabitants in combination with an ongoing growing economy it is not a surprise that the country is confronted with a rising demand for energy. Since China became heavily reliant on energy from outside its borders in 1993 due to shortages in their own oil and gas reserves, it is now seeking to diversify and broaden their options for energy supply from energy-rich countries (Kenny, 2004: 37-38). Especially since 9/11 and the incidents deriving from this terrorist attack, China’s energy supplies from the Middle East are not as secure as they used to be (Lee, 2005: 270; Jiang, 2014: 36-37). For that reason, China has turned west and has shown more interests in Central Asia, especially in Kazakhstan because of its great oil and gas reserves (Amineh and Houweling, 2007: 368).

The presence of China in Central Asia and Kazakhstan in particular is not a recent phenomenon; their diplomatic relations already dates back from 1992 however it has now increased hundred-fold. Today, China is connected with Central Asia through gas and oil pipelines, and a substantial network of roads, railways, air flights and communication (Mariani, 2013: 1). China’s bilateral relation with Kazakhstan is no coincidence since Kazakhstan is one of the world’s top-20 oil producers and because their share of borders of around 1700 km (Ministry of Foreign Affairs Republic of Kazakhstan 2014). Two recent achievements in the relationship between Kazakhstan and China are the building of a 3000 km oil pipeline between the two countries and the takeover of PetroKazakhstan by the Chinese National Petroleum Corporation (CNPC) in 2005, fit perfectly in the new ‘Going Out’ policy by the Chinese government (Liao, 2006: 39). In this policy Chinese state-owned enterprises (SOEs) such as national oil companies (NOCs) are being encouraged to go abroad to search for natural resources (Vendryes, 2012: 5).

Given the energy situation of China and their ‘Going Out’ policy as mentioned earlier, it is clear that energy security challenges are the top priority of the Chinese

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government. China entering the group of oil-importing nations, and as an emerging great power, has caused a debate about China’s international behavior towards importing oil. The question is whether China’s behavior will radicalize or moderate since its need for even greater quantities of imported oil and what the geopolitical implications will be for other oil-importing countries (Downs, 2004: 21). According to the International Energy Agency (IEA) it is predicted that China will import 80% of its total oil consumption in 2030 (Lee, 2005: 266). This has made China a major player in the field of world’s energy politics and its investments are therefore present in all resource-rich regions (Deng, 2003: 113).

This thesis concentrates on the geopolitical implications of the energy relations between China and Kazakhstan. It will include the responses from two other major players in the international energy market, namely Russia and the United States (US). Furthermore, the reaction from the host country Kazakhstan will be discussed. Before turning to the responses from Russia, the US and Kazakhstan, the diplomatic, economic and security relations between Kazakhstan and China will be outlined to give a comprehensive overview of their relationship. In addition, the energy situation of China and Kazakhstan will be deployed which will provide the necessary background information for understanding the energy relations between the countries. The role of Chinese NOCs is given special attention since they play an important role in China’s energy security strategy and in the trade and investments between Kazakhstan and China.

The research question for this thesis is: What are the challenges and

opportunities for China’s energy supply from Kazakhstan and its supporting energy security strategy, and what are the responses from the US, Russia and host country Kazakhstan? In order to answer the research question, the thesis will be formulated

into four chapters which contain and answer sub-questions derived from the research question. These are:

1. What is the influence of China’s energy strategy on its foreign policy and vice versa?

2. What is the role of Chinese NOCs in the diversification of energy and energy supply?

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4. What is the diplomatic, economic and security relations between China and Kazakhstan?

5. What are the responses from other major players in the international energy sector, i.e. the US and Russia and Kazakhstan itself, to China’s presence in Central Asia and Kazakhstan?

1.2 Theoretical Framework

Before turning to the study of the energy relations between China and Kazakhstan, it is essential to first deploy the theoretical considerations underlined in this thesis. The theory provides a framework for the analysis of the relations between the two countries and helps to identify the structures and actors involved. As Robert W. Cox put it: “Theory is always for someone and for some purpose" (1981: 128).

This theoretical framework will start off with a study on energy security to help understand China’s foreign and ‘Going Out’ policy. The importance of energy security is enhanced because of the global scarcity of natural resources. Since most of the overseas activities are carried out by Chinese NOCs, the framework of critical geopolitics is most helpful because it shifts away from the more traditional point of view that only nation-states are the main actors. Moreover, other actors such as NOCs now play a vital role in the world and in order to understand their overseas activities it is important to analyze the transnationalization of these companies as well.

1.2.1 Energy Security

Security of energy supply is an important aspiration of energy policy in many countries around the world, especially for those heavily reliant on energy imports from energy rich countries such as China (Winzer, 2012: 2). The importance of energy security is enhanced since the world is facing a decrease in the available stocks due to rising prices of natural resources. In other words, there is scarcity in natural resources (Amineh and Houweling, 2007: 347). However, an uninterrupted supply of energy, fossil fuels in particular, is critical for the functioning of an economy. Thus, energy security has mostly always been associated with securing of access to oil supplies but the concept and definitions of energy security have widened over time (Kruyt et al, 2009: 2167).

There is not one concept of energy security; the International Energy Agency (IEA) illustrates energy security as ‘the uninterrupted availability of energy sources at

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an affordable price’, and Bohi and Toman (1993: 1094) describe energy security as ‘economic issues related to the behaviour of markets’, but the most well known definition of energy security comes from Yergin. He states that the objective of energy security is ‘to assure adequate, reliable supplies of energy at reasonable prices and in ways that do not jeopardize major national values and objectives’ (Yergin, 1988: 11).

This definition by Yergin on energy security suits China’s case the best because of its emphasis on preserving national values and objectives, which is important for CCP’s political legitimacy. CCP’s main concern is to promote economic development and simultaneously maintaining political and social stability. Thus, oil is a necessity to the economy and military. For this reason a reliable and adequate supply of oil at reasonable prices is crucial to national values and objectives (Leung, 2011: 1332). Moreover, it could be argued that China’s current perception on energy security features characteristics of traditional thinking on energy security, which is state-centric, supply-side biased, focused on oil, and occupied with being self-sufficient (Downs, 2004: 93). Being unable to rely on its own energy resources to supply to China’s economy was seen as a big loss when the country became a net importer of oil in 1993 (Moreira, 2013: 142). It was only until then when energy security became of high importance to the Chinese government (Leung, 2011: 1332).

1.2.2 Critical geopolitics

In securing energy supplies from oil rich states such as Kazakhstan, China is facing some geopolitical challenges. Therefore, the study of geopolitics is important to this research to analyze and distinguish the most important actors of analysis and ideas. The framework of critical geopolitics is considered most helpful to understand and analyze the geopolitical implications of China’s energy supply from Kazakhstan because it embraces a broader view on world politics and includes the political economy in its analysis. Although there is no one definition of critical geopolitics, it could be argued that critical geopolitics focuses on the geographical factors and policies deriving from this (Agnew, 2010: 570).

Within the study of geopolitics there are many different strands to distinguish. One of the most dominant strands is called traditional geopolitics and it is closely related to the realist school of thought in international relations (Amineh, 2003b: 2). Both theories assume that states are occupied with the balance and distribution of

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power in world politics, driven by absolute gains and states acting out of self-interests (Amineh, 2003b: 2; Wendt, 1992: 392). Critical geopolitics of currently in the early 90’s as response to shifts in world politics due to the globalization of the world (Agnew, 2010: 569). This strand within geopolitics criticized traditional geopoliticians for having too simplistic understandings of places and their networks (Dodds et al, 2013: 5-6; Kuus, 2010: 5).

The contribution of critical geopolitics to traditional geopolitics is broadening the analysis of actors involved. It is not only a matter of analyzing state actors within formal institutions, such as the government, but also non-state actors (Dodds, et al, 2013: 7). For this reason critical geopolitics shares some features with liberalism because of its focus on non-state actors and international institutions (Walt, 1998: 32). However, critical geopolitics also includes (international) political economy and therefore examines the interaction of economic and political phenomena across state borders (O’Brien and Williams, 2013: 24).

1.2.3 Transnationalization of NOCs

As it became clear within the framework of critical geopolitics, the state-centric approach is no longer sufficient enough to explain the current worldwide phenomena. In contrast, it is important to include diversified actors such as transnational companies due to the fact that the world has become more globalized and integrated. However there is no single concept to describe and define globalization, it is clear that globalization is a process that is not bound to a beginning and an end (Al-Rodhan, 2006: 3). Globalization could be understood as ‘the increase of the economic interdependence between states, mirrored by the increase of the trans-border flows of economic goods, services and know-how’ (Radu, 2009: 399).

Transnational companies are the leading forces within the process of globalization due to their overseas activities such as trade on the international market and their involvement in foreign direct investment (FDI) whereas FDI involves an investment made by a company outside of its home country in which control over the resources transferred remains with the investor (Radu, 2009: 401; O’Brien and Williams, 2013: 134). In the late 90's, the influence and power on trade and international capital flows of transnational companies increased strongly. The emergence of transnational companies started in the most developed countries such as

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the US, however, soon after they emerged in developing countries such as China as well (Radu, 2009: 401).

Recent forms of transnational companies are NOCs. While most NOCs are state-owned enterprises (SOEs) and therefore serve the interest of the national government, operating within their national borders, they have now expanded their activities overseas making them transnational companies (Amineh and Yang, 2014: 517). Especially Chinese NOCs have engaged themselves in many overseas activities since the ‘Going Out’ policy and the recognition by the Chinese NOCs executives that, in order for more exploration and development opportunities, they have to compete internationally (Downs, 2010: 80). In the last three years Chinese NOCs spent a total of 73 billion dollars (USD) in upstream investments and now operate in more than 40 countries to control about 7% of worldwide crude oil output (Jiang, 2014: 36). In addition, Chinese NOCs are engaged in so-called ‘equity oil investment’ (EIO). Typical for EOI is purchasing drilling and exploration rights to secure a guaranteed percentage of production by the host country, construction of energy-related infrastructure in the host country, or the acquisition of foreign energy companies for their technical know-how efficiency and physical assets in the ground (Wolfe and Tessman, 2012: 177; Cutler, 2014: 682-683).

By 2012 NOCs worldwide controlled over 90 per cent of the global oil reserves access. Therefore, the overall dominance of NOCs in the coming years will heavily determine prices and production of oil (Amineh and Guang, 2014: 518).

1.3 Methodology and data

This section provides a brief overview on which resources have been used, and the operationalization of central concepts, within this thesis to understand and answer the research question. The findings and assumptions within this research derive from a combination of qualitative and quantitative research, therefore it is said to be a mixed method research. Nevertheless, this research will mostly use a method of comprehensive literature study from academic journals to answer the research question. In addition, the type of research is a case study with Kazakhstan as case.

The qualitative part of the research consists out of analyses on diplomatic and security relations between China and Kazakhstan, China’s energy strategy and NOCs, and the geopolitical implications of China’s presence in Kazakhstan for Russia, the US and Kazakhstan. In this thesis geopolitical implications are discussed as the

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degree of (diminishing) influence and power in the region of Central Asia, specifically Kazakhstan, policy, cooperation within bilateral and multilateral frameworks and the responses and perception by citizens of Kazakhstan. These factors are mostly geographically, security, or economic motivated.

For the diplomatic relations between Kazakhstan and China it is important to examine the amount of official visits the presidents of the two countries have paid to each other. The number of agreements made between Kazakhstan and China and their bilateral and multilateral cooperation also determine the diplomatic relationship of the countries. Moreover, their bilateral and multilateral cooperation also plays an important role in China and Kazakhstan’s security relation regarding counterterrorism and border disputes.

Different sources of data have been gathered for the qualitative part of the research: ranging from working papers from institutes such as the Organization of

Economic Co-operation and Development and International Monetary Fund to

acknowledged academic journals as China and Eurasia Forum Quarterly, Foreign

Affairs and Asia-Pacific Review. In addition, two Chinese newspapers China Daily

and Xinhua and official reports and documents from the Ministry of Foreign Affairs of China and Kazakhstan have been used for research.

The quantitative part of the research consists of so-called ‘primary resources’ because the data is directly obtained from compatible research institutes such as the

U.S. Energy Information Administration (EIA) and International Energy Agency

(IEA). Information about China’s and Kazakhstan’s current energy situation and economic relations are mostly acquired from quantitative data analyses based on figures and numbers from documents and reports worked out by these research institutes. The focus will be on their production and consumption of oil including oil refineries, and Kazakhstan and China’s main trade partners. This information is to a great extent based on the Short Term Energy Outlook 2013-2014 by the EIA, CIA

World Factbook and OECD/IEA reports. The economic relations between China and

Kazakhstan are investigated through FDI. Here, FDI is used as investments in the shape of pipelines, infrastructure and EIO. Furthermore, FDI is being discussed as grants and loans given by the Chinese government to Kazakhstan, and lastly, the export and import of products between the two countries are included and analyzed.

To conclude this section, it is important to accentuate that it is aimed to give an as much broad range of perspectives on this research topic as possible, ranging

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from western and Chinese scholars and institutes, to give a comprehensive overview of the research. In addition, more documents and sources have been consulted for this research and are included in the bibliography.

1.3.1 Energy Scarcity Model

To understand the Chinese oil strategy in securing their oil supplies from Kazakhstan in a situation of global resource scarcity it is important to understand first how resource scarcity appears. The energy scarcity model by Amineh and Houweling (2007) does this by distinguishing three types of scarcity: demand-induced scarcity, supply-induced scarcity and structural scarcity. This model is therefore a way to expose need for energy and China’s relationships with producer countries such as Kazakhstan, including the role of NOCs in securing oil supplies.

Demand-induced scarcity, first of all, is caused by three factors: population growth in consuming countries, rising per capita income in high-income countries and technological changes (Amineh and Houweling, 2007: 374-375). The high-income countries are those who industrialized late, mostly in South and East Asia. Since the 1850s the history of technological changes has made it possible to access fossil energy more, not less. To increase the level of power and wealth countries have made themselves reliant on these fossil fuels and the competence to extract and exploit energy resources.

Supply-induced scarcity could be put simply as the interaction between demand and supply-induced scarcity. Nevertheless, Amineh and Houweling (2007: 375) argue it should be studied on its own right as well. Supply-induced scarcity could provoke a process of competitive power projection through military or diplomatic means by import dependent countries, aiming to gain control over naturel resource stocks or territory where stocks are located.

The last form of energy scarcity is the structural scarcity that is closely related to supply-demand scarcity. Structural scarcity is the result of a major power, such as oil companies or production cartels like the Organization of Petroleum Exporting Countries (OPEC), deliberately holding back their supplies of natural energy resources. In short, these major powers control the access to energy supplies for others (Amineh and Houweling, 2007: 375).

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1.4 Structure of thesis

This introductory chapter has given an overview of the research question, supporting sub-questions, theoretical framework and explained the research method for this thesis. The following chapter, chapter two, will focus on China and its energy policy. In order to analyze China’s energy policy it is important to firstly examine the current energy situation of the Chinese economy from 1993 since the country then became a net-importer of oil with the ending of their self-sufficiency era. The aim of this chapter is to give an insight into the relationship between the foreign policy of China and its energy security strategy where the Chinese NOCs plays a vital role.

The energy relations between China and Kazakhstan will be the main focus of chapter three. Therefore, it will first give a survey of the energy situation of Kazakhstan and their energy reserves from the post-Soviet Union era. Consequently, it will then turn to the diplomatic, economic and security relations between China and Kazakhstan to give an understanding of the comprehensive relationship.

Chapter four will discuss the geopolitical impact of the relationship between China and Kazakhstan on Russia. Along with the reactions from Russia, chapter four also captures the responses from Kazakhstan itself since the energy relations with China evidently affects their economy.

Finally, the last chapter serves to answer the research question and presents the results of the research. Furthermore, it will discuss the hypotheses stated earlier in this thesis to be either rejected or adopted and give rise to further research on this topic.

Chapter II. China’s energy security

This chapter serves to provide some background information on China’s energy situation. Chinese NOCs are taken into account since they play a vital role in the country’s economy. It is important to have an understanding of China’s energy situation because it explains the country’s foreign policy, their search for energy outside their own borders, and their strategy on diversifying its energy and suppliers. The following questions are therefore addressed: What is the influence of China’s

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energy strategy on its foreign policy and vice versa? and What is the role of Chinese NOCs in the diversification of energy and energy supply?

This chapter is structured as follows; section 2.2 will start with an overview of China’s energy situation since 1993, supported by the most recent information regarding the country’s energy production, reserves and consumption. Section 2.3 will discuss the energy strategy based on China’s energy situation and how this influences its foreign policy. Section 2.4 will explore the role of Chinese NOCs in their economy and energy strategy; finally this chapter will end with concluding remarks in section 2.5.

2.2 China’s current energy situation

China has experienced rapid industrial and urban development in the past decades (Best and Levina, 2012: 7). With a population of more than 1.3 billion people (see table 2.1) it is the world’s largest energy consumer. In addition, China has the fastest growing economy in the world despite the fact that, according to China’s National Bureau of Statistics, its economy has been shrinking since 2011 from 9.3% to a 7.7% gross domestic product (GDP) growth rate in 2013.

The most important and used energy in China is coal. Coal has been the key driver behind the excessive growth of Chinese economy in the past decades (EIA 2014). Despite the environmental objections, it enables China in a great deal to be self-sufficient in its energy (Leung, 2011: 1331). Figure 2.1 shows that China in 2012 produced approximately 4 billion short tons of coal, equivalent to its consumption (EIA 2014). However, in comparison to earlier years the share of coal in China’s total energy usage is diminishing. In 2005 China’s energy consumption existed out 70.8% of coal whereas in 2012 this was 66.6%, a decline of 4.2% (China Statistical Yearbook 2013). This trend is in line with the expectation of the IEA that coal will become less important in China’s economy. It is estimated that by 2030 the demand for coal will decline by 60% (Downs, 2004: 23). As most coal reserves are primarily found in the northern provinces of Shanxi, Shaanxi and Inner Mongolia, the demands are coming from along the coast of China. It is often cheaper for these customers to import coal from a road due to the fact that it is mostly of higher quality as well. Due to this reason China became a net importer of coal from 2009 (Leung, 2011: 1331). The total imports of coal grew with 323 million short tons in 2012, which was around 30% higher than 2011. More than 60% of this imported coal is coming from

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Indonesia and Australia, China’s largest coal suppliers. Considered the large reserves of coal in the world, coal is not a high-politicalized commodity in comparison to oil (Ibid: 1331).

Figure 2.1: China’s coal production and consumption, 2000-2012

Source: U.S. Energy Information Administration, International Energy Statistics, FACTS global Energy

Contrary to coal, oil is seen as an important and strategic commodity, especially since the consumption of oil is steadily growing and China’s own production of oil is increasing slowly. Therefore China is facing an increase in dependency on foreign sources (Lee, 2005: 267). The country had been self-sufficient until 1993 but then became a net importer of oil and since 1996 of crude oil (Amineh and Houweling, 2007: 367). China was the world’s second-largest oil important in 2013 behind the US with 6.2 million barrels per day (mb/d) (see figure 2.2 below), however, the EIA expect that China will surprise the US in 2014. In 2013, the top ten crude oil suppliers of China were Saudi Arabia, Angola, Oman, Russia, Iraq, Iran, Venezuela, Kazakhstan, United Arab Emirates and Kuwait (Jiang and Ding, 2014: 10).

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Figure 2.2: Top ten annual net importers, 2013

Source: U.S. Energy Information Administration, Short Term Energy Outlook, January 2014

As figure 2.3 will show below, the oil consumption of China in 2013 reached around 10.7 mb/d while its production was only 4.5 mb/d (Downs, 2004: 23). It is predicted by Chinese as foreign analysts that China’s oil imports will continue to grow by 12 mb/d by 2018 and 15.6 mb/d by 2035. As a result, the expectation will be that China will take over the position of world’s largest oil consumer by around 2030 (Jiang and Ding, 2014: 10).

Most of Chinese crude oil production capacity is based onshore, around 81%, and the resting 19% is produced offshore. The Daqing oilfield in the northeastern province of Heilongjiang is the oldest and most producing oilfield of China. Daqing oilfield covers 19% of China’s overall production. It produced in 2012 around 800.000 barrels per day (b/d) (Leung, 2011: 1330-1331; EIA 2014).

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Figure 2.3: China’s oil production and oil consumption, 1993-2015

Source: EIA International Energy Statistics and Short Term Energy Outlook, January 2014.

The biggest driver of China’s oil demand growth is the transport sector because of the rapid growth of road transport, the growth in the use of diesel in rail transport and the greater use of domestic flights within China. Nevertheless, the industrial sector remains the biggest consumer of oil (Leung, 2011: 1332-1333). This has to do with the growth in high-technology exports of manufactured goods. The Worldbank (2015) describes high-technology exports as: ‘products with high R&D intensity, such as in aerospace, computers, pharmaceuticals, scientific instruments, and electrical machinery’. In 2012 26.3% of China’s whole export existed out of high-technology exports and, as figure 2.4 shows, from 2005 to 2011 the total amount grew from 2 billion to 5 billion (Worldbank 2015). Compared to the growth in high-technology exports with the rest of the world, this is exceptionally high.

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Figure 2.4 China and World’s High-Technology Exports (USD)

Source: Worldbank Data Catalog, 2015.

Other energy supplies, i.e. natural gas, hydroelectric sources, nuclear power and other renewables, only account for a small share (12% in 2011) in China’s total energy consumption. Due to this high coal consumption China is at the same time world’s leading energy-related CO2 emitter (EIA 2014).

The current energy situation of China shows that the country is dealing with demand-induced scarcity in oil that is caused by China’s great population, the rising per capita income, and technological changes that effects their industrial sector (Amineh and Houweling, 2007: 374-375).

2.3 China’s energy strategy

The current energy situation of China shows that oil consumption and production is the most problematic. It was until China became a net-importing country of crude oil when the country began to pay attention to energy security in general and oil security in particular (Lee, 2005: 265). For many years, since the founding of the PRC in 1949, the main objective for the leaders of the PRC was to remain self-sufficient in production and consumption without depending on foreign resources to safeguard its national security. However, this strategy changed with the economic reforms by Deng Xiaoping in 1978 (Jian, 2011: 5). Ever since, China’s energy security policy has developed and changed over the past few decades, in correspondence with China’s general foreign policy (Ibid: 4).

Since 1999, there has been put more emphasize on the performances of SOEs due to the ‘Going Out’ policy. This policy supports SOEs to go seek oil abroad and

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create more competiveness amongst them (Cutler, 2014: 682; Jian, 2011: 6). Additional to SOEs, the National Energy Commission (NCE), the National Development and Reform Commission (NDRC), the Ministry of Foreign Affairs (MFA) and the military are the main actors involved in the energy security strategy. Other stakeholders in China’s energy security are economic and foreign policy research institutes, academics and the media (Downs, 2004: 24-25; Jian, 2011: 10). The NCE and NDRC collaborate and are held responsible for creating and implementing energy development plans and reviewing energy security. In addition, the NDRC plays a crucial role in China’s Five-Year Plans (5YP) whereas the 12th 5YP is the most recent one released in 2011 (Downs, 2004: 25). The more diplomatic side of energy security politics, involving sustaining close relationships with oil-rich countries, is assigned to Chinese diplomats within the MFA (Ibid: 26). At last, China’s energy security has a military component as well. It is not completely clear to what extent the military is involved in the energy security, however China has a long history of arms sales to energy producers for instance Iran and Saudi Arabia. Additionally, China has declared to commit its military forces across its borders to sustain stability in the region, especially within Central Asia, to secure its energy supplies. According to Blank (2006: 56) this suggests that China is not afraid of approaching feasible threats to its energy supplies with aggression. However, China emphasizes it is not seeking for hegemony or pose any threats to other countries (White Paper on China’s Energy Conditions and Policies 2007). Moreover, the main principles of the ‘Five Principles of Peaceful Coexistence formulated by former premier Zhou Enlai in 1954, are still of high importance in today’s foreign policy and embraced in China’s energy policy. These principles carry out a road to development and cooperation in a peaceful way whereas the core idea behind the Five Principles is best interpreted as the concept of sovereignty (Mariani, 2013: 3-4).

At present, the 12th 5YP is in effect until 2015. Three out the seven strategic investment areas relate to energy including clean energy, energy conservation and clean energy cars (Fung and Chu, 2011: 1). The White Paper on Energy conditions and Policies 2007 by the Chinese government states that China is ‘a responsible developing country’ and that ‘it attaches great importance to environmental protection and prevention of global climate change’. Therefore China is an active participant in international multilateral and bilateral energy cooperation such as the energy-working group of the Asia-Pacific Economic Cooperation (APEC), the International Energy

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Forum, and the country maintains close relations with the OPEC. Furthermore, China keeps in close contact with a number of energy consuming and producing countries such as the US, Japan, Russia and the EU to strengthen the international cooperation based on mutual benefits, diversified development and common energy security through coordination (White Paper on Energy Policy 2012).

The targets that have to be met in 2015 according to the 12th 5YP are reduction by 16% in energy use per unit of GDP, 17% reduction of carbon dioxide emissions per unit of GDP and the use of non-fossil fuels as a percentage of total energy consumption should be 11.4% in 2015 and 15% by 2020 (Fung and Chu, 2011: 2). It is argued that there will occur tension between the central and local governments since provincial governments have their own 5YPs and agenda that are focusing on fast growth, which may undermine China’s sustainable energy development efforts (Ibid: 4).

2.3.1 Role of NOCs

As mentioned in the previous paragraph, SOEs were highly stimulated to go abroad in their search for energy supplies. In this light, the Chinese NOCs are the most effective SOEs run by the Chinese Ministry of Petroleum Industry and the former Ministry of Chemical Industry (Jiang and Sinton, 2011: 9). During 1998-2000 the three largest Chinese NOCs, the China Petroleum and Chemical Corporation (Sinopec), China’s National Petroleum Corporation (CNPC) and China National Off shore Oil Corporation (CNOOC) (Jiang and Sinton, 2011: 9) were reorganized and partially privatized (Ma and Andrews-Speed, 2006: 20). However, the Chinese Communist Party (CCP) still exercises power over the NOCs to some extent by appointing, dismissing, and promoting the companies general managers. In addition, foreign energy investments made by Chinese NOCs with an amount over 30 million USD need to be signed off by the NDRC and those more than 200 million USD have to be reviewed by the NDRC and afterwards submitted to the State Council for approval (Downs, 2010: 75-76). Due to these proceedings and activities by the state-party it is argued that China’s NOCs are solely puppets of the Chinese government. On the contrary, they are in fact very powerful and largely independent actors, having their own national and international interest that is not always in line with the CCP (Ibid: 74). This became clear during the summer of 2005 when domestically oil product prices were substantially lower than those on the international market due to oil

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shortages in China. Chinese NOCs aim on as much profit as possible and thus putting its sale of oil products on the international markets would be more benefiting, however it was expected by the Chinese government that NOCs would fill in the gap and accept the reduction in their profits. To maintain social stability in the country and show loyalty to the CCP the Chinese NOCs cooperated but this tolerance is not unlimited (Downs, 2006: 49).

It is mostly argued that the sole motive for Chinese NOCs is expanding the control over resources and supplies. Nevertheless, this is only one of the many motives of the NOCs and commercial motives are most likely the largest driver behind their investments abroad to enjoy higher profits and greater autonomy than within their own country borders (Jiang and Sinton, 2011: 12-13; Amineh and Guang, 2014: 522). Table 2.1 below shows the main motivations and strategies of China’s NOCs.

Table 2.1: China’s NOCs motivations and strategies

Source: OECD/IEA 2011 information paper, 2011 p: 13.

Long-term survival is highly important to Chinese NOCs and therefore it is necessary to expand their overseas activities and gain a position in the international exploration and production business (Ma and Andrews-Speed, 2006: 20). Compared to Western based international oil companies (IOCs) Chinese NOCs lag behind in technological expertise (Amineh and Guang, 2014: 520). To deal with their lag of technological expertise Chinese NOCs make strategic partnerships with other NOCs and IOCs in which will help them to learn from other NOCs and IOCs with their knowledge and expertise on specific issues, such as deep-water exploration (Jiang and Sinton, 2011: 15). Chinese NOCs can still count on greater political support from their government

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and receive easier funding (Amineh and Guang, 2014: 520), however this is not everlasting since China as a member of the World Trade Organization (WTO) is now obliged to open up the petroleum sector to international companies as well. State banks may therefore give Chinese NOCs less easy loans than before (Ma and Andrews-Speed, 2006: 20-21).

The three main Chinese NOCs are geographically divided: CNPC in northern China, Sinopec in southern China and CNOOC is in control of the offshore production. However, this strict division have blurred as NOCs moved their activities outside Chinese borders. Nevertheless, their original objectives and tasks have not changed: CNPC is still occupied with pipeline construction and operation, Sinopec is the most important and largest refiner and CNOOC is specialized in offshore upstream production (Jiang and Sinton, 2011: 9-10).

Table 2.2: China’s NOC’s in numbers

Company Global Ranking Revenue 2012 (USD million) Profits 2012 (USD million) Assets (USD million) Sinopec 3 457201 8932 352982 CNPC 4 432007 18504 620651 CNOOC 79 95971 7700 172062

Source: Fortune Global 500 ranking 2014

In a report from the IEA this year it states that Chinese NOCs produced a total of 2.5 mb/d in oil and gas overseas. Accordingly, the NOCs control about 7% of all crude oil output in the world and of all acquisitions done in 2009, 61% could be appointed to China. In addition, they spent 73 billion dollars in upstream investments in the last three years and operate in more than 40 countries i.e. Sudan, Kazakhstan, Nigeria and Myanmar (Jiang, 2014: 36-37). Table 2.2 shows the significance of China’s NOCs and makes clear that they are the big players on the global energy scene.

2.4 Conclusion

This chapter explored China’s current energy situation and its energy policy with an extra focus on the Chinese NOCs. It became clear that China’s economy is mostly based on coal and it is for this reason that China can still be self-sufficient for a great deal. Nevertheless, the country has a large oil deficit because its production cannot

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meet its consumption. Although for a long period in time the main objective by the Chinese government was to stay self-sufficient, China had to start import crude oil in 1993. Due to the economic reforms and the ‘Going Out’ policy of China from 1999, NOCs were stimulated to go abroad for new markets and became the most important player in the energy sector. The objectives of the NOCs and the CCP do sometimes collide since the NOCs became more commercialized and privatized. However, the NOCs can still rely on the support from the government.

It could be argued that the need for new energy resources caused a change in China’s foreign policy and it was the main reason why they had to open up to the rest of the world. China’s energy strategy is to a great extent based upon the important principles of peaceful development and cooperation originating from the country’s foreign policy. This shows in the many bilateral and multilateral organizations China is involved in to tackle the energy industry and the 5YP is an important guideline for its energy policy. In short, China’s energy security and foreign policy has developed and influence one another.

Chapter III. Sino-Kazakh Relations

This chapter explores the relationship between Kazakhstan and China since the independence of Kazakhstan in 1991. Therefore, the questions related to this chapter are: What is the diplomatic, economic and security relations between China and

Kazakhstan? and What makes Kazakhstan an attractive trade partner? To answer

these questions paragraph 3.2 will give a short introduction of Kazakhstan and its energy resources and current energy situation. Paragraph 3.3 will then continue to deploy the diplomatic relations between Kazakhstan and China; paragraph 3.4 will discuss the energy relations and, lastly, paragraph 3.5 will discuss the security relations between the two countries to give a most comprehensive overview as possible. However the main focus of this chapter will be on the energy relations between China and Kazakhstan.

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3.2 Country profile of Kazakhstan

Kazakhstan has become one of the most important participants in the energy sector in Central Asia (Saurbek, 2008: 79). The country has an advantageous geopolitical position because it is closely located to the east and west of the oil and natural gas-rich Caspian Sea (Xuetang, 2006: 117). Together with the five main Central Asian states, Russia, Azerbaijan, Iran, Turkmenistan and Uzbekistan, it belongs to the Caspian Region that is an important source of global energy production. In 2012 Kazakhstan accounted for 92% of the total oil production within the whole Caspian Region (EIA 2013).

The country shares borders with Russia, China, Uzbekistan, Kyrgyzstan and Turkmenistan but has traditionally always been an ally and partner to Russia, however Kazakhstan now upholds a ‘multivectoral’ policy which means that it wants to widen its diplomatic, strategic and economic relations with other important players in the international arena, especially with the US, European Union, Middle-East and China (Saurbek, 2008: 80).

Table 3.1: Country profile Republic of Kazakhstan

Independence 16 December 1991 (from the Soviet Union)

Capital Astana

Language Russian 95%; Kazakh 64,4% Population (July 2014, est.) 17, 948, 816

Ethnic Groups (2009 est.) Kazakh (Qazaq) 63.1%, Russian 23.7%, Uzbek 2.9%, Ukrainian 2.1%, Uighur 1.4%, Tatar 1.3%, German 1.1%, other 4.4%

Religions (2009 est.) Muslim 70.2%, Christian 26.2% (mainly Russian Orthodox), other 0.2%, atheist 2.8%, unspecified 0.5%

Chief of state President Nursultan Abishuly Nazarbayev Source: CIA the World Factbook 2014 retrieved from website:

https://www.cia.gov/library/publications/the-world-factbook/geos/kz.html

The relative social and political stability in the country makes it an attractive destination for capital investments, especially since its extensive economic growth in the mid-1990s. This was made possible due to Presidents Nazarbayev’s strong presidency and the transition from a socialist to a market-oriented economy (KPMG,

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2012: 7). According to the Ministry of Economy and Budget Planning of Kazakhstan in 2013, the average annual GDP growth will be 6,5% from 2014 to 2018 with a peek of 7,1% growth in 2015 (Ernst and Young, 2014: 3). Nevertheless, Kazakhstan still needs to undergo through some political, economic and social reforms before it can fully make use of its own natural resources (KPMG, 2012: 5).

The major trade partners of Kazakhstan are Russia, member states of the European Union (EU), the US, China, and ‘others’ i.e. Turkey, Uzbekistan and Ukraine (see figure 3.1). Most of this trade consists out of oil and oil products, ferrous and non-ferrous metals, machinery, chemicals, grain, wool, meat and coal. Kazakhstan imports consist out of, amongst others, gas, industrial materials and machinery (KPMG, 2012: 8).

Figure 3.1: Export and Import Shares of Kazakhstan’s Trade Partners

Source: IMF country report no. 14/243

Kazakhstan’s proven oil reserves were estimated at 30 billion barrels in 2013, which is around 3.9 billion tons and its proven natural gas reserves at 85 trillion cubic feet (Tcf) (Ernst and Young, 2014: 4; EIA 2013). The total gas and oil production is expected by the Kazakh government to rise to 90 million tons in 2015 and 110 million tons in 2018 (Ernst and Young, 2014: 4). Most of Kazakhstan’s natural gas reserves (70%) are located in the three main oil and natural gas fields, namely Karachaganak (46%), Tengiz (12%) and Kashagan (12%) (EIA 2013).

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As figure 3.2 below shows, Kazakhstan’s economy is heavily dependent on its oil exports because of their small population accompanied with a low consumption level (Saurbek, 2008: 81).

Figure 3.2: Kazakhstan’s oil production and consumption, 2004-2014

Source: U.S. Energy Information Administration, Short Term Energy Outlook, September 2013.

This is the reason why the Kazakh government is now seeking for diversification of its market economy and trade partners, however it is facing some problems in doing so (Minasyan and Yang, 2013: 2). One of these problems is the fact that the country is landlocked geographically, which cause barriers for the transportation of goods and commodities such as energy. Furthermore, the development, exploration and transportation of Kazakhstan’s energy is being complicated due to the conditions of the climate and drilling equipment’s, the distance from major energy consumers centers, and the constraints of infrastructure (Saurbek, 2008: 81-82). As a result, most of its oil and gas exports are operated via the Caspian Sea, rail cars and pipelines (Ernst and Young, 2014: 6). The largest export routes in 2013 are shown in table 3.2 below.

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Table 3.2: Largest export routes in Kazakhstan, 2013

Source: The Ministry of Oil and Gas of Kazakhstan

The IEA foresees that Kazakhstan by 2020 will be in the top 10 of oil and natural gas exporters with the national company KazMunaiGaz as one of the main players in the production of oil and gas (Ernst and Young, 2014: 4).

3.3 Diplomatic relations China-Kazakhstan

After the independence of Kazakhstan in 1991, diplomatic relations between Kazakhstan and China were immediately established in January 1992 but it was until October 1993 when the Kazakh President Nursultan Nazarbayev paid a first official visit to China (Liao, 2006: 40). This had to do with the fear of Beijing for Kazakhstan’s policy of encouraging Kazakhs to migrate back to their ‘home’ country and that this would effect Uighur separatist groups in Xinjiang to establish its own ‘motherland’ (Ibid: 40-41). Thus, the first incentives to start diplomatic relations with one another were due to security issues and resolving border issues.

The diplomatic relations between Kazakhstan and China has evolved substantially since they first were established in 1992 and the countries have reached major political agreements. Between 2003 and 2007, the Kazakh and Chinese presidents have met twelve times under bilateral or multilateral frameworks where in 2006 the two presidents met four times. The occasions for these meetings were amongst others the SCO anniversary summit in Shanghai and the Conference on Interaction and Confidence-Building Measures in Asia (CICA) Summit (China Daily, 15-10-2007). During a four-day visit to China by President Nursultan Nazarbayev, both countries signed the “China-Kazakhstan Good-Neighborly Treaty of Friendship” (Xinhua, 15-12-2014). This treaty has now been extended to a strategic partnership signed in July 2005 by both parties, based on political, cultural, economic and

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security cooperation. The Chinese government has committed itself to support Kazakhstan’s efforts to join the World Trade Organization (WTO), safeguard Kazakhstan’s sovereignty and security, and promoting its development. In terms of cultural cooperation, there will be an increase of Kazakh students enjoying education in China with a focus on science and technology (McDermott 2011). In September 2013, during Xi Jinping first visit in Kazakhstan, the presidents discussed the future of their bilateral relationship (Xinhua 2014). These regular official visits between Kazakh and Chinese officials are clear evidence that the two countries have a strong connection (Saurbek, 2008: 81).

Today, both Kazakhstan and China continue to deepen their relations either through bilateral cooperation or through cooperation within multilateral organizations such as the SCO, all on the basis of mutual benefits (China Daily 2007).

3.4 Trade and investment between China-Kazakhstan

A series of agreements between Kazakhstan and China, signed by former Chinese Prime Minister Li Peng in 1997, gave the start of developing energy relations between the two countries (Cutler, 2014: 677). Special attention has been given to Kazakhstan’s energy resources and the right to enter the Kazakh energy market by Chinese NOCs (Saurbek, 2008: 84). Therefore, most of those agreements contained acquisitions by Chinese NOCs of oil and gas fields in the west and northwest of Kazakhstan (Cutler, 2014: 677). This was made possible because of the privatization of Kazakhstan’s energy industry for example; CNPC purchased a 60% stake of the Aktyubinsk oil (Sheives, 2006; 216). In doing so, CNPC made significant commitments to the oil sector in Kazakhstan especially when the company in 2005 took over PetroKazakhstan for 4.18 billion USD (Saurbek, 2008: 81; Torbakov, 2006: 34). This deal gave China full control over the Kumkol South oil field and a joint ownership of the Kumkol oil field North with Russia’s Lukoil (Xuanli Liao, 2006: 66), which makes China having a leading position in the field of cultivating and developing energy industries within Kazakhstan that enables China to utilize Kazakhstan’s major energy resources (Mariani, 2013: 10). For instance, Sinopec and CNPC produce about 13 million tons of oil annually in Kazakhstan (Marketos, 2009: 8).

In 1998 the two countries signed a contract to construct a pipeline, named the Atasu-Alashankou pipeline, going from northwest Kazakhstan to China’s province

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Xinjiang, the largest project since their cross-border cooperation (Cutler, 2014: 677; Ibraimov, 2009: 54). However, the Kazakh-China oil pipeline took a long time to be accomplished due to political, technical and organizational disagreements and obstacles, it was completed in 2006 after former Chinese President Hu Jintao signed a declaration of strategic partnership with Nazabayev that promoted and accelerated the production of the pipeline (Cutler, 2014: 679; Marketos, 2009: 7). CNPC and KazMunaiGaz signed an agreement in 2007 to extend the pipeline 700 kilometers westward so China would be directly linked to Kazakhstan’s Caspian fields (Marketos, 2009: 7). It is now an important source of oil for the Dushanzi refinery in Xinjiang and with the extension of the pipeline; it should have had a capacity of 400,000 bbl/d of oil in 2014 (Mariani, 2013: 10; EIA 2014).

The economic relationship between the countries is mostly focused on the energy supply from Kazakhstan to China. It is predicted that Kazakhstan’s main export market will be China, which will be mostly fuels worth already 7503 million USD in 2011 (ING, 2013: 10). Kazakhstan’s export to China is not only limited to oil and gas but also includes uranium, raw materials, such as iron and steel, fertilizers, ores, copper, aluminum, cowhide and so on (Cutler, 2014: 683; Wu and Chen, 2004: 1065). It is estimated that Kazakhstan’s export will grow to over 30 billion USD in 2017 (ING, 2013: 10).

The establishment of diplomatic relations between China and Kazakhstan in 1992 also opened the doors for bilateral trade. The countries have now signed more than 150 bilateral agreements on trade and economic cooperation (Sadovskaya, 2012b: 89). Moreover, China enjoys an advantage in trading products with Kazakhstan because the quality of goods is of higher than those from Russia plus the fact that business contacts between the US and Kazakhstan are not as developed yet in comparison with China (Swanström, 2005: 579-580).

In 1992 the amount of trade between Kazakhstan and China was about 369 million USD, accounting for 20% of the total foreign trade of Kazakhstan, and grew substantially to 3214 million USD in 2011 (Wu and Chen, 2004: 1065; ING, 2013: 7). Xinjiang is the most important province in trade with Kazakhstan and accounts for approximately 80% of all trade (Wu and Chen, 2004: 1065). However, the range of products being traded is restricted to exporting mostly textiles from China to Kazakhstan. Other important products are office, telecom and electrical equipment,

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industrial machinery and road vehicles and transport equipment, and chemicals. The last four products are most likely to grow fastest between 2012-2017 (ING, 2013: 7).

In 2009 the Kazakh government received 10 billion USD in loans from China to rescue local banks and financial institutions (Cutler, 2014: 683). Next to loans, numerous grants have been provided by the Chinese government for the construction of roads including an Almaty-Astana highway, high-speed rail line between the two cities and a railway between Zhezkazgan and Beineu, namely to transport Chinese goods, and mini-markets. However, big amounts of those grants have disappeared in the pockets of local officials in Kazakhstan (Ibid: 683; Ibraimov, 2009: 56).

In addition, the data on imported goods from China to Kazakhstan from both countries are not in line with each other. According to China the amount on Chinese imported goods to Kazakhstan totaled 9 billion USD in 2007, while Kazakhstan’s data only mentions 1.5 billion USD. In short, corruption in Kazakhstan is still an obstacle for the trade relations between the two countries (Ibraimov, 2009: 56-58).

Finally, another component of trade and investments between Kazakhstan and China is the phenomenon of Chinese migration to Kazakhstan namely for trade and consumer goods purposes (Sadovskaya, 2012a: 106).

3.5 Security issues within Sino-Kazakh relations

In 1950 the CCP consolidated the northwestern province Xinjiang despite the heavy resistance from the residents, mainly consisting out of China’s minority the Uighurs. In order to gain independence or more autonomy Uighur separatist were involved in violent activities to pursue their goal. Many Uighurs have organized itself in parts of Central Asia including Kazakhstan (Sheives, 2006: 208). This dispute with this minority is the greatest threat to the cooperation between Kazakhstan and China since Xinjiang is of high importance for the transportation and trade links between the two countries (Ibid: 209; Canas, 2005: 15). Ethnic separatism and social stability in the region have been an internal concern for decades (Xu, 1999: 44).

In 1994 former Chinese Premier Li Peng paid a visit to Kazakhstan to discuss their policies towards the Uighur separatists (Liao, 2006: 41) and in 1996 Kazakhstan gave renewed support to Chinese policies in Xinjiang and stepped up the level of cooperation. This led to an agreement among China, Russia, Kazakhstan, Kyrgyzstan and Tajikistan to help resolve border issues in which later became the Shanghai Five

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(Sheives, 2006: 208). The main objective of the member states of the Shanghai Five were to combat transnational security threats such as cross-border crimes, religious fundamentalism, ethnic separatism and international terrorism (Chung, 2004: 990). In 2001 the Shanghai Five became the Shanghai Cooperation Organization (SCO) including Uzbekistan (Ibid: 991). Whereas the Shanghai Five was mainly set up to solve the remaining border disputes from the collapse of the Soviet Union that complicated the interstate relations in the region, the SCO became more of a security, political and economic institution (Xuanli Liao, 2006: 64; Sheives, 2006: 2010). According to the China’s White Paper on Defense 2002 “The SCO propagates the ‘Shanghai Spirit’ that features mutual trust, mutual benefit, equality, consultation, respect for diverse civilizations and seeking common development”.

Another problem Kazakhstan and China are facing and what may threaten their good relationship are illegal arms and drugs trafficking from Afghanistan to Kazakhstan. According to Kazakh President Nazarbayev this problem is one of the three main challenges to the security of Kazakhstan, among religious extremism and international terrorism (Canas, 2005: 15) China is concerned that it will reach Xinjiang province as well and might support separatist’s movements there (Ibid: 9).

At last, the many Chinese migrants in Kazakhstan are causing ethnic tensions between the two countries as Chinese migrants are being blamed for taking jobs of local population (Canas, 2005: 9). In addition, the expansion of joint ventures and Chinese businesses cause the decline of local Kazakh businessmen because they cannot compete against the cheap prices from the Chinese labor force (Sadovskaya, 2012c: 8).

3.6 Conclusion

The focus in this chapter was on the diplomatic, economic and security relations between China and Kazakhstan. The chapter began with giving a brief country profile of Kazakhstan including their energy situation. This made clear why Kazakhstan is such an attractive (trade) partner because the country is located in the Caspian region and therefore possesses a great amount of oil and gas. The relative social and political stability, and their ‘multivectoral’ policy, makes Kazakhstan highly interesting for capital investments. To China, that also shares borders with Kazakhstan, these are good reasons to construct diplomatic relations with the country. These were established in 1992, accordingly due to border issues however; their diplomatic

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relations has broadened ever since. They now include cooperation in several bilateral and multilateral frameworks such as the SCO. The diplomatic relations also opened doors for trade between China and Kazakhstan, which is now growing substantially. The main focus within their economic relation is on oil. Chinese NOCs are investing great amounts of money into Kazakhstan’s oil and gas fields, which enables China to utilize Kazakhstan’s energy resources. Furthermore, the Chinese government provides loans and grants for the construction of infrastructure in Kazakhstan. So far, the major project between the countries was the creation of the Atasu-Alashankou oil pipeline, that links northwest Kazakshtan to Xinjiang province in China. Obstacles for deepening their diplomatic and economic relations between Kazakhstan and China are the separatist movement of Uighurs in Xinjiang province, illegal arms and drugs trafficking from Afghanistan to Kazakhstan, and the corruption amongst Kazakhstan’s officials.

Chapter IV. Geopolitical implications

The emergence, or as some observers (Torbakov, 2006; Agnew, 2010; Wu an Chen, 2004) argue ‘re-emergence’, of China in Central Asia and specifically Kazakhstan, has effected other interested actors in the region and country as well. It is argued that the presence of China is causing a new version of the ‘Great Game’ that occurred in the nineteenth century within Central Asia between Russia and Great Britain (Swanström, 2005: 581). However, today the main players are Russia, India, members of the EU, the US, Turkey, Pakistan and Japan whereas the US and Russia, the EU and India are considered the most influential (Xuanli Liao, 2006: 68; Swanström, 2005: 582; Amineh, 2003: 3).

This chapter will review the geopolitical implications of China’s presence in Kazakhstan and Central Asia in general, for the US and Russia. Russia is seen as the traditional dominant actor in the region that perhaps will loose this position to China (Torbakov, 2006: 33). The US, as a dominant western power in the region, is claiming its position as well since Central Asia and Kazakhstan play a vital role in its fight against terrorism, especially since 9/11 (Nurgaliev, 2007: 52-53). After the

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geopolitical implications of Russia and the US are discussed, the responses of Kazakhstan to their relationship with China will be examined. Therefore the central question in this chapter is: What are the responses from other major players in the

international energy sector, i.e. the US and Russia and Kazakhstan itself, to China’s presence in Central Asia and Kazakhstan?

4.2 Russia

Russia has traditionally been the most significant power in Central Asia in both political and military terms (Amineh, 2003b: 5; Swanström, 2005: 582). However, its dominant position is far from guaranteed since China’s presence in the region and the war on terror has led to an expansion of US forces on the same ground as Russian troops (Torbakov, 2006: 33). In addition, Russia is coping with own economic problems, the value of the ruble keeps decreasing due to low oil prices (de Volkskrant 2014), and the wish of Central Asian states to distance them selves from Russia (Amineh, 2003b: 5). Nevertheless, preserving economic, political, and military influence in Central Asia is still what Russia is aiming for, including the control of Caspian oil and gas resources and transport (Amineh, 2003a: 4). For that reason, Russia was rather critical and unenthusiastic about the construction of the China-Kazakh pipeline for bypassing Russian territory and the ability to directly transport oil to the consumer. With the existence of the pipeline, Kazakhstan is able to be less dependent on Russia therefore weakening the influence of the Kremlin (Saurbek, 2008: 90). To preserve some of its influence in the region, Russia refers to regional cooperation in the context of the Commonwealth of Independent States by creating regional organizations such as the Eurasian Economic Community (EAEC) with Belarus, Kazakhstan, Tajikistan and Kyrgyzstan to deepen the cooperation in the economic and humanitarian fields (Amineh, 2003a: 4; Amineh, 2003b: 5).

On the one hand, Russia is well aware of the importance of maintaining a good relationship with China although they are full risks since they are still rivals in their Central Asian energy relations (Ferdinand, 2007: 83; Blank, 2006: 53). On the other hand, the collaboration is giving Russia new opportunities as well (Ferdinand, 2007: 83). For example, Russia has found in China an ally to diminish the influence of the US in Central Asia (Blank, 2005: 109). The two countries do this in the framework of the SCO (EUCAM, 2012: 1).

China’s thirst for oil : the case of Kazakhstan

Bachelor Thesis