China-Kazakhstan energy relations between 1997 and 2012.

AuthorAlvarez, Cesar B. Martinez
PositionAsia

While China's interest in securing energy resources has garnered much attention in the media lately, its approach to energy security is nothing new, at least in regards to its Central Asian neighbors. The People's Republic of China (PRC) has always had several interests in common with these Central Asian neighbors, especially dealing with migration, trade, and ideological extremism. Still, its focus on developing stronger energy relationships with these neighbors has gathered momentum over the last two decades, especially as the economy has liberalized and emphasis has shifted away from self-reliance to ensuring affordable and stable supply of energy to meet China's burgeoning demand. In particular, since 1997 China has given increasingly focused support to its national oil companies to develop strong linkages with their counterparts in Kazakhstan, bolstered by elevated government-to-government ties between the two countries. Chinese expansion into Kazakh oil fields reflects not only the PRC's interest in maintaining energy security but also its desire to strengthen relations between China's western regions and Kazakhstan as well as to tighten the economic linkages between China's Xianjiang region and its own coast. In so doing, the PRC is attempting to strike a delicate balance between coordination with Russia on strategic and security issues and competing with Putin's new Russia for influence in Central Asia.

Part One: Introduction

Most of the media attention on Chinese foreign policy focuses on the relations between Beijing and its Eastern neighbors (Tokyo, Seoul, Taipei, and Pyongyang), as well as on the dynamics of Chinese-American interactions: territorial claims (Senkaku/Diaoyudao, and Takeshima Dokdo Islands), tensions on the straits, the North Korean nuclear program, human rights issues, and occasional political clashes between Washington and Beijing (for example in 2001), represent the most visible elements of Chinese contemporary diplomacy. Much less academic and policy attention has been devoted to the links between the People's Republic of China and its western neighbors in Central Asia: Kazakhstan, Tajikistan, Kyrgyzstan, Turkmenistan, and Uzbekistan.

The former Soviet Central Asian space has become an increasingly relevant region to fulfill Beijing's foreign policy and grand strategy. (1) On the one hand, the Xinjiang Uyghur Autonomous Region is closely linked to its western neighbors, and both China and the Central Asian countries share common security threats and challenges: Islamic extremism, terrorism, illegal migration, drug trafficking, and others. (2) Additionally, since the mid-nineteenth century--the time of the Great Game between the British Raj and the Czarist Empire--the region has been a geopolitical battleground, whose strategic situation has deeply changed after the fall of the Soviet Union. In other words, domestic security and great power politics are two key interests for China. (3)

In 1993, China became a net oil-importing country for the first time in its history. (4) The Central Asian territory is a keystone in Beijing's energy security strategy: first, there has been a shift in the center of gravity for the Chinese hydrocarbons industry, from the Heilongjang province (where the plethoric Daqing Oilfield is located) to the Ordos and Tarim basins in Xinjiang; the geological similarities between the westernmost Chinese basins and Kazakh oil plays represent a crucial economic interest for China. Second, Central Asia, and Kazakhstan in particular, has become a very attractive place for Chinese direct investment, both in exploration and development of petroleum as well as in the construction of oil and gas pipelines.

Given the extraordinary relevance and complexity of this region, I will focus on China-Kazakhstan energy links. What are the most salient interests of the Chinese energy security strategy in Central Asia, particularly in Kazakhstan? Which tools has Beijing used in order to fulfill those goals? Have they been successful? What are the overall diplomatic and geostrategic consequences of China's recent interest in Central Asia in terms of hydrocarbons development?

The main argument of this essay is that security of energy supplies has gradually become a central issue in the Chinese-Kazakh economic and political agenda, along with other topics like migration, ideological extremism, and trade. Beijing's strategy has been two-fold: on the one hand, Chinese National Oil Companies (NOCs), in particular China National Petroleum Corporation (CNPC), were--somewhat autonomously--pioneers in dabbling in the capital-thirsty Kazakh hydrocarbons sector and establishing corporate links with their Kazakh counterparts. Over time, they have been able to participate in increasingly attractive oil plays. On the one hand, these Kazakh counterparts have received relevant direct and indirect support from the Chinese government in terms of financial resources and diplomatic initiatives.

In the first part of the paper, I will briefly describe the overall framework of Chinese energy policy since 1993, focusing on the mounting petroleum needs of the country as well as on the institutional reform that resulted in the creation of three national oil companies that have recently become global economic players. In the next three sections, I will analyze the different moments of Beijing's energy security strategy in Central Asia, with a particular emphasis on the Kazakh case: 1997-2001, 2002-2008, and 2009 onwards. Finally, the paper concludes with some remarks about the overall geostrategic consequences of this diplomatic and business activity.

Part Two: From the Maoist Hydrocarbons Industry to the Modern Chinese National Oil Firms

For several years after the Maoist victory in the civil war in 1949, the domestic petroleum sector was strongly associated with the strength of China, the need for self-reliance, and the resistance against the aggression of the superpowers (including the Soviet Union after the Sino-Soviet split). (5) Daqing became synonymous with the industrial potential of the new regime. (6) After a few months of a mass campaign in 1959, oil output increased from 0.79 million metric tons per year by 1960 to 4.40 million in 1963. (7) From then onward, oil revenues were a crucial source of foreign currency for China (some authors claim that they represented nearly 20 percent of the country's international trade). (8)

Nonetheless, after the implementation of economic liberalization in the country, the impressive growth of coal, petroleum, and natural gas consumption revealed the supply deficiencies of the Maoist Chinese energy industry; therefore, illegal and uncontrolled coal mining activity, electricity shortages, and substantial decreases in oil output, especially in Daqing, motivated policymakers in the 1980s to reform the energy governance model of China. (9) In the context of a transformation in the role of the Chinese state in the economy, and as a result of the reorganization of the old Maoist Ministries of Petroleum Industry and of Chemical Industry, three national oil companies emerged: the China National Petroleum Corporation (CNPC), the China Petroleum & Chemical Corporation (better known as Sinopec), and later on, the China National Offshore Oil Company (CNOOC). (10)

In the 1990s, amidst the liberal reform of the economic czar Zhu Rongji, the new firms experienced a process of corporatization and became vertically integrated companies, with business units in exploration, production, and refining. (11) The Ninth and Tenth Five-Year Plans (1996-2006) aimed at creating competitive and modern actors in many different economic sectors of the country. (12) The official support for overseas corporate activities from Chinese State-Owned Enterprises (SOEs) and their partial privatization complemented the hydrocarbons sector reform in the People's Republic...

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