China Reaps Rewards of Central Asian Investment

Saule Mukhametrakhimova

Central Asia Editor

Saturday, 18 February, 2012

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Turkmen gas supplies to China reached over 20 billion cubic metres last month, more than two-thirds the target volume for the end of 2012. IWPR Central Asia editor Saule Mukhametrakhimova looks at the implications of Chinese investment in Central Asian energy.

What impact has the trans-Central Asian pipeline had in its first two years of operation?

The gas pipeline was conceived five years ago when China and Turkmenistan signed a 30-year supply agreement. It runs over 2,000 kilometres from Turkmen via Uzbekistan and Kazakstan to China, where it links up with the domestic network.

At the moment, it mostly carries Turkmen gas, although Uzbekistan has committed to providing 25 billion cubic metres a year. Another ten billion cu m annually will come from Kazakstan’s gas fields.

For the Central Asian states, the importance of the pipeline goes beyond energy revenues. The first major pipeline from the region that bypasses Russia, it brings a much sought-after diversification of export routes. It secures China as a long-term buyer of Central Asian gas, and one that, unlike European countries, is a growing economy. It also opens up the prospect of sales to Japan and South Korea.

In China, the Central Asian countries have an investor that is willing to bankroll large-scale infrastructure projects – and not just in the energy sector – and that has proved effective in implementing them.  

What makes China a particularly attractive investor for Central Asian governments? 

Unlike Russia, China is the potential to offer multi-billion-dollar loans and investments.

So far, China’s policy of engagement has demonstrated a very pragmatic approach, emphasising economic gains rather than the pursuit of political dominance. Beijing is, of course, seeking a strategic partnership which will guarantee it the support of Central Asian states when it needs that. But as it pursues economic and political aims, it will not seek to cross Russia, a country that has traditionally dominated the region.

So the increasing Chinese presence in Central Asia is not seen as unduly aggressive by regional governments. What’s more, unlike many western countries, China does not insist on tying investment to democracy and human rights. 

How do the Central Asian countries benefit from this economic relationship?

Last year, Kazakstan and China signed a series of agreements including a memorandum to construct a high-speed rail link between the Kazak capital Astana and its financial centre Almaty, a loan to build a petrochemicals plant, and a deal to sell Kazak uranium for China’s growing nuclear industry.

Previously, Beijing granted loans to support telecommunications and agriculture projects, as a way of diversifying Kazakstan’s economy away from its reliance on oil and gas. China also helped finance and build an oil pipeline from central Kazakhstan to its northwestern frontier. The pipeline, launched in 2007, is now being extended to reach Kazakstan’s huge oil resources on the Caspian Sea.

Uzbekistan is also seeking Chinese assistance. When Uzbek president Islam Karimov visited the country last year, deals were signed on over 25 separate projects, worth five billion dollars of investment, to finance transport and chemical production projects. China is also funding the construction of a railway linking it with Uzbekistan via Kyrgyzstan.

In Turkmenistan, China has invested in the South Yolotan gas field, estimated to contain the fourth largest reserves in the world. In June 2010, it provided investment for a stretch of pipeline connecting the existing China-Central Asia pipeline starting in eastern Turkmenistan to that country’s western resources. 

Does the Central Asia-China pipeline divert supplies from the future Nabucco pipeline route that European states want to build through Turkey, linking up to Azerbaijan and the Caspian?

The pipeline to China does raise questions about the Nabucco project, as Turkmenistan – along with Azerbaijan and Iraq – would be one of the main sources of gas for that route. Turkmen officials insist their country has enough gas to supply both China and the Nabucco project. But this is only one of several obstacles to building Nabucco, which also include concerns about cost and security. 

The advantages of cooperation with Beijing seem clear, but what about negative perceptions of Chinese influence within the region, such as fears of immigrants flooding the region?

Negative stereotypes about China are widespread among ordinary Central Asia, and are largely a legacy of Soviet times, when relations between Moscow and Beijing were cold.

Fears of an influx of Chinese into Central Asia have not materialised. What’s more, the generations that has grown up since the collapse of the Soviet Union is much more open to China, with many learning the language and interested in doing business there. For the emerging middle class, China has joined the list of favourite tourist destinations alongside Turkey, the Emirates and Europe.

Some experts do voice concern about becoming too economically dependent on China. They also point out that having the upper hand in energy deals allows China to drive down the prices it pays, compared with what Central Asian oil and gas might fetch in other global markets.

Moreover, Beijing brings in its own workforce for the infrastructure projects it funds. This creates tensions with local workers, who resent foreigners taking their jobs. This contributes to a sense that Chinese investment does not create employment or improve local skills.

Finally, the influx of Chinese consumer goods into Central Asia undermines local producers. So there is a danger that instead of developing sustainable economies of their own, countries in the region will end up as suppliers of the raw materials that drive Chinese growth, and as export markets for its goods.

But there are also analysts who argue that the biggest economic threat is not China’s domination of the energy sector, but corrupt government in Central Asia itself. Corruption and lack of transparency mean there is no certainty that energy contracts and investment projects will benefit the Asian states. 

Saule Mukhametrakhimova is IWPR Central Asia editor in London.