Home .Globalization winners Kazakhstan and China
Kazakhstan and China
Monday, 21 November 2011 03:02

Over the last few years Kazakhstan has implemented foreign policies aimed to improve relations with a vast array of new geopolitical actors, besides common partners such as Russia, on which the Central Asian country was formerly heavily dependent.

Using its huge potential in the hydrocarbon industry, Kazakhstan has managed to rise above all other Central Asian states in terms of political and economic importance and has turned its eyes to China as an important and powerful partner for cooperation in the economic, political, and security spheres.

This article on Kazakhstan and China was written by Fabio Belafatti, and originally published by our knowledge partner "Equilibri" at the following address:  http://www.equilibri.net/nuovo/sites/default/files/focus_belafatti_china%20kazakhstan.pdf

The “Kazakh path” (with its contradictions) and Kazakh-Chinese relations

In recent years Kazakhstan has become an important actor in regional international relations in Central Asia. The country's improvements have been underscored by international observers in many occasions. It is undeniable that compared to the rest of the region, Kazakhstan shows much higher levels of development. In purely macroeconomic terms, Kazakhstan’s economy is the largest in Central Asia and has shown very high growth levels for many years, recovering very fast when hit by the world economic crisis. In broader terms, Kazakhstan’s success is underscored by the fact that it is the only country in the region to be ranked among states with a high level of Human Development.

Behind these praises, however, there seems to be a well-coordinated effort by Kazakhstan and, often, its European partners to boast about the country's achievements, carefully ignoring its problems.  Western journalists seem sometimes to be willing to indulge in uncritical praising of the “Kazakh path”, but the country still has serious infrastructure problems, combined with an intrinsically unstable authoritarian political system and a still insufficiently diversified economy.

It should therefore be remembered that no matters how impressive Kazakhstan's achievements might seem, there is room for improvement: the country still needs help from its neighbours and is continuously and dynamically looking for opportunities to consolidate its growth through economic cooperation. This makes Chinese-Kazakh relations particularly important not just for the overall situation of the trade balance between the two countries, but, in a broader sense, also for the very sustainability of the “Kazakh path”, and for Central Asian stability  in general.

An outline of Kazakh-Chinese relations

Political relations between China and Kazakhstan are successful: since independence, the two countries have settled old disputes about their common border and established close political contacts. Chinese and Kazakh officials meet frequently to discuss bilateral issues and, for Kazakhstan, “developing good neighborly relations with China is a top priority”. Today, both share membership of the Shanghai Cooperation Organization and other regional groups committed to promote political cooperation and security. This entails strong reciprocal support in some of the two countries' most important foreign policy goals: Kazakhstan backs Beijing's “One China” policy, supporting the official Chinese position on Taiwan and Tibet, while China supports Kazakhstan's bid to become a member of the WTO.

Bilateral economic relations are equally positive and have been intensifying for many years. The main factor behind the continuous improvements in trade relations is China's unmatched willingness and ability to invest. Figures in this regard are impressive: at the beginning of 2011, for example, Beijing committed to loan $1.7 billion to the Kazakh national welfare fund, $5 billion to the local petrochemical industry, and to buy Kazakh uranium for an estimated $8 billion. Increased Chinese influence is welcomed in Astana because it provides an opportunity to diversify the country's economy. For many years, trade relations remained limited to gas and oil exports from Kazakhstan to China, however trade is now slowly starting to diversify, with positive consequences for the economic interconnection of the two countries, especially in the border regions.

Recent developments

The improvement of bilateral relations between China and Kazakhstan underscores these developments and might, in the short term, help consolidate the achievements of the largest Central Asian republic. Over the past few months, Chinese and Kazakh officials have met to discuss economic, political, cultural and security issues. In June, Hu Jintao and Nazarbaev talked about the details of the security partnership agreed upon in 2005 and signed an agreement for the “Development of an all-round Strategic Partnership”, which includes a commitment to boost bilateral trade and increase meetings between high-ranking officials. At the moment the situation of Kazakh-Chinese relations could not look better: Nazarbaev and Hu Jintao seem to have a deep mutual understanding and the current Kazakh temporary presidency of the SCO will provide additional opportunities for the two presidents to meet and discuss aspects of bilateral cooperation. Chinese officials have expressed satisfaction for the current situation of trade relations and have praised the recent creation of a trade and business centre in Khorgos, at the border between Kazakhstan and China.

Kazakh and Chinese officials have excellent reasons for being happy also about the two countries' trade relations, which have reached a volume of $20 billion in 2011 (up from just $8.3 billion in 2006), much larger than trade between Kazakhstan and Russia. The initial goal set by Kazakh and Chinese officials was to reach a trade volume of $15 billion by 2015, however this goal has been surpassed four years early as the value of bilateral trade is already $5 billion above the planned level. Besides direct trade, Kazakhstan is also important for China as a transit country: among the issues recently discussed was also the improvement of railway connection between China and Kazakhstan and, from there, to Russia and Western Europe.

These developments do not simply prove that China's importance for Kazakhstan is constantly and rapidly increasing, but also that the economic influence of Russia in the Central Asian region as a whole is steadily declining, due to more and more competition from China, but also from Turkey and, to a much lesser extent, Iran. Figures and data are not the only proof of this trend: in the whole region, markets, traditional bazaars and even common people's lifestyles are changing: the Chinese economic presence is becoming obvious even in the smallest and most remote villages in Central Asia, often allowing poor people to buy goods that they could not afford otherwise. Russia simply seems to lack the ability to hinder China's advance. The future looks even less bright for Moscow: agreements between China and Kazakhstan seek to raise bilateral trade to $40 billion by 2015, further strengthening China's foothold in Central Asia.

In terms of economic relations, even more improvements can be expected. At the end of September, Chinese and Kazakh entrepreneurs met to discuss business between the two countries. The Chairman of the Standing Committee of China's National People's Congress, Wu Bangguo, has taken advantage of the opportunity to talk about future cooperation opportunities in energy, mineral resources, roads and railway construction, metallurgy, telecommunications and agriculture; the Chairman has also emphasized the need to improve cooperation between companies and increase the amount of mutual investments. It is important to note that Bangguo has emphasized non-resources cooperation opportunities over simple energy cooperation: Kazakhstan needs to rapidly diversify its economy to shelter it from the risks related to depending on fluctuating oil and gas prices, and the support of a powerful partner like China would certainly help the country achieve its goals. It remains to be seen however, whether Chinese investments and cooperation would be actually used to promote economic diversification in Kazakhstan. Rather than relying on the amount of financial resources available, such a process of diversification depends on the political will of the Kazakh elite, which may not have a strong interest in diversifying after all: in fact, scarcely diversified economies that rely heavily on natural resources offer the best opportunity for political leaders to indulge in kleptocracy. It is Nazarbaev's civic-mindedness (or the lack of it) that will determine whether China's help will serve the interests of the country or, rather, the desires of the president's circle.

Energy cooperation

Energy looms large in Kazakh-Chinese relations. Beijing views Central Asia, especially Kazakhstan and Turkmenistan, as an important element in its energy equation and hopes to obtain more and more resources from the region. Central Asia can help Beijing to diversify its energy supplies, reducing its dependence on the largest Middle Easters oil exporters, which provided China with more than two million barrels/day in 2010. Chinese officials are worried about political instability in the Middle East and the likelihood of the US closing the Strait of Malacca through which supplies, en route from the Middle East, must transit. These are, indeed, serious concerns. It is very likely, therefore, that China will continue increasing its oil and gas imports from Central Asia over the next years, potentially decades, guaranteeing the expansion of the energy sector in Central Asia's hydrocarbon-rich states. Moreover, Chinese purchases of Central Asian oil and gas provide the region not just with a massive source of income, but also with a powerful alternative to Russia as a transit country, increasing the political manoeuvring space of the Central Asian governments. Astana is fully aware of these benefits and is accordingly doing its best to satisfy China's requests.

At the moment, Kazakhstan is one of China's main energy providers (11 million tons of oil reached China in 2010 through the Kazakhstan-China oil pipeline), and Chinese officials visiting Central Asia have recently expressed their desire to strengthen energy cooperation with oil-rich Kazakhstan. The Central Asian country's oil exports are set to increase dramatically over the next years with Kazakh officials promising a 50% increase by 2020, and a large share of this will be used to meet China's growing demand: Kazakhstan's goal is to provide 22 million tons/year of oil to China by 2020, up from an estimated 12.1 million tons in 2011. To achieve this, Kazakhstan is working to increase the amount of oil delivered through the Kazakhstan-China pipeline, while constructing a parallel gas pipeline which should become operational in 2014. In addition to increasing Kazakhstan's gas exports, this new infrastructure would also fill a serious gap in Kazakhstan's pipelines network, enabling gas from the west of the country to be delivered to the industrial southern regions of Kazakhstan, consequently eliminating the reliance on Uzbek gas.

Hydrocarbons will definitely remain at the core of energy cooperation between Astana and Beijing. According to Chinese officials, however, cooperation should not be limited to oil and gas but should extend to clean energy as well. Nuclear energy cooperation has also been singled out as an important sector for cooperation: from 2011, Kazakhstan will begin exporting uranium to China. These developments seem beneficial for Kazakhstan: it needs new trading partners in order to exploit its huge resource potential and become one of the five largest oil producers in the World, but it is also committed to diversifying its economy, which investment in other sectors such as renewable energies helps it to achieve.

Security cooperation and risks connected to unrest in East Turkestan

For China, security is one of the main aspects of its Central Asian strategy. In his meeting with Nazarbaev in the summer of 2011, Hu Jintao stressed the importance of security outlining its three main threats in the Central Asian region: separatism, extremism and terrorism. This reflects Beijing preoccupations with the instability in Eastern Turkestan, or Xinjiang, the turbulent region affected by sporadic outbursts of violence by the local Muslim Uyghur majority, who suffers from alleged discrimination, colonisation attempts and wholesale repression from Beijing. The most recent explosion of violence in July 2011 cast a shade of pessimism over the likelihood of achieving long-lasting stability in East Turkestan.

As all of the strategic oil and gas pipelines connecting China to Central Asia pass through East Turkestan, violence in that region can adversely affect Chinese oil imports and jeopardize Beijing's energy security. This is why instability and religiously-motivated terrorism are deeply feared by Chinese officials, as demonstrated by the commitment with which China tries to strengthen the role of the SCO as a means to ensure regional stability. Accordingly, security is becoming a more and more important factor in shaping relations with Kazakhstan, and in the short term it is set to become a field of even closer cooperation within the SCO. Some Kazakh observers, however, doubt that cooperation between China and the former Soviet republics of Central Asia is actually anything more than a showcase of diplomatic skills from Beijing, and argue that integration within the SCO will never be fully achieved because of the strong military and cultural ties between Central Asia and Russia.

For Beijing, economic cooperation with Astana may actually be the best way to promote security: Chinese policies in Central Asia aim quite explicitly to integrate East Turkestan's economy with that of Central Asia. As far as Kazakhstan in particular is concerned, Chinese officials often note that East Turkestan and Kazakhstan share deep cultural roots and that the Central Asian country may be a useful and important trade partner for the westernmost Chinese regions. Bangguo for example praised the planned opening of the Khorgos centre as a powerful opportunity to improve trade between Kazakhstan and China's west and increase cooperation at local level. Beijing is implementing a plan to improve economic conditions in East Turkestan as a tool to prevent social unrest and reduce the frustration of the local Uyghur population, and Kazakhstan's economic activity in East Turkestan may therefore provide also security, through prosperity, to a volatile and strategically pivotal region. 

The bleak sides of cooperation with China

The risk of a false diversification

The main problem for Kazakhstan's economy is the low level of diversification and the dependence on oil and gas exports. Chinese investments in non-resource sectors may be just what the country needs to overcome the obstacles to its development and avoid the “middle income trap” and the consequences of hydrocarbon prices fluctuation. However, there are risks associated to close relations with China, as well.

There is still debate about the medium-term ability of the Chinese economy to maintain the remarkable growth levels experienced over the last few years (the same growth on which cooperation with Kazakhstan basically depends). Economic analysts both from China and the West have been warning for many years about the risks related to overheating of the Chinese economy. Ambose Evans-Pritchard has repeatedly underlined, often in a quite over-pessimistic way, the problems that China may face in a not-too-far future. Even Shaun Rein, sometimes considered as one of the most vocal advocates of China's achievements, has warned about some problems, such as the risk of bubbles in China's dot-com sector, high inflation rate, housing problems and US-Chinese trade tensions. More worrying signals of overheating have been identified by Bloombeg's analysts and by the World Economic Forum in 2010. Even though a “hard landing” is now considered unlikely, this risk cannot be ruled out completely.

Kazakhstan's economy is set to rely more and more on China's money, cooperation, investments and energy imports, which exposes the Central Asian country to the risk of dependence on one single partner, and on its economic fortunes or misfortunes. This would mean replacing the reliance on hydrocarbons exports with another form of dependence. Oddly enough, this danger may be avoided because of the notorious wariness of authoritarian regimes for cooperation: Kazakhstan's leadership is still to some extent cautious about China's intentions and is therefore unwilling to allow its powerful neighbour to unleash its full potential in Kazakhstan. Nazarbaev's administration has embarked upon a convincing effort to promote Kazakh economic presence in the West and in the former Soviet space, and, as a matter of fact, one of the main tenets of recent trends in Kazakhstan's foreign policy is the desire to establish successful international relations within a so called “multi-vector” approach, i.e., without choosing any country as a privileged partner: Kazakh embassies seem to be actively committed to attracting investments from more   economic partners and are showing a remarkable level of activism. Unfortunately, geography does not help Kazakhstan: despite its huge size, the country is landlocked and shares a border with only two big economic partners, i.e., Russia and China. The rest of the Central Asian region is unable to provide comparably effective and profitable economic cooperation; and even if it could, Astana is now committed to present Kazakhstan as a “Eurasian” power, oriented more to the West than to the much poorer Central Asian republics.

Chinese migration and local reactions

Besides the risk of dependence on China, there is also another problem for Kazakhstan: if, on the one hand, Chinese investments and cheap goods are generally much welcomed both by the Central Asian governments and by the local population, the same cannot be said about Chinese emigration, temporary or permanent. It is not unusual, in the region, to hear complaints about Chinese workers. Sometimes, criticism is directed also at those labourers who build strategic infrastructure that would never see the light of the day without China's help. Such feelings are even stronger in Kazakhstan, whose population size and demographic density pale in comparison to that of China. Many Kazakhs fear a Chinese demographic expansion in their country and are afraid that Beijing may be actually pursuing an agenda of colonization of the Central Asian countries. In 2010, Chinese attempts to lease a vast swath of Kazakh land were met with fierce (and unusually large) protests from the local population. Kazakhs are worried by what they can see just across the border, in East Turkestan, where the percentage of Uyghurs in the total population has been progressively reduced by a massive influx of ethnic Han, who may even become the majority in a not-so-distant future. The concerns of the Kazakh population cannot be ignored by the authorities and will definitely prove to be a powerful obstacle to economic integration in the form of direct Chinese presence in Kazakhstan.

A double dilemma for Kazakhstan?

Astana may therefore be facing an uncomfortable dilemma: either to accept opening entirely to China, at the cost of depending more and more on a more powerful neighbour (and on its economic performance), or limit Beijing's manoeuvring space and exploit only a fraction of the potential benefits that could come from closer bilateral relations. The need to consider the hostile feelings of part of the Kazakh population towards Chinese penetration definitely makes this dilemma more complicated. According to Niklas Swanstrom, director of the Stockholm-based Institute for Security and Development Policy, Chinese-Kazakh relation will not develop much further than their current status, precisely because the Kazakh leadership seems too afraid of the risks of close cooperation.

Conclusions

Political and economic cooperation between China and Kazakhstan is, overall, an example of success. The two countries still cooperate mostly in the energy sphere, but both seem committed to encouraging Kazakhstan's economic diversification. However, Chinese investments may not be enough: a strong political will from the Kazakh side is required to successfully promote diversification, even though this may deprive the leadership of opportunities for kleptocracy. Also  cooperation in the aspect of security with China has economic dimensions, which may even prove to be more important than pure military cooperation: Kazakhstan might in fact be the best ally in Beijing's effort to reduce social unrest in East Turkestan by providing more economic prosperity to that region. In this regard, the promotion of trade in border areas is particularly important. Cooperation, however, has its drawbacks. Depending too much on China may be dangerous for Kazakhstan, if Beijing experiences serious economic downturns. Moreover, the two countries might be close to reaching the limits of their cooperation: Kazakh officials' wariness of China's power, and the local population's fear of Chinese demographic expansion, may prove to be insurmountable obstacles to cooperation efforts. In any case, Kazakhstan's problems are unlikely to be solved exclusively by closer ties with China. Diversification, not just in the economic sphere, but also in the choice of political partners, will remain Kazakhstan's priority for the time being.

 

 


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