Kazakhstan embraces Chinese investment

Kazakhstan announced billions of dollars in deals with China on Tuesday, underlining central Asia's gradual shift away from Moscow and towards Beijing.


Meeting in Beijing on Tuesday, President Nursultan Nazarbayev of Kazakhstan and his Chinese counterpart Hu Jintao signed a series of agreements ranging from water rights to uranium supplies to a $5bn energy infrastructure loan.


China's investments in Kazakhstan have for years centred around oil production, but Tuesday's deals underline that Beijing's reach now expands beyond the energy sector.


On the table were a $1.7bn loan from China to Kazakhstan's national welfare fund; a $5bn loan for a petrochemical complex; a supply agreement for around 55,000 tonnes of Kazakh uranium to meet China's growing nuclear needs; and a memorandum of understanding for China's Ministry of Railways to help construct a high-speed rail between Astana and Almaty.


Agreements were also reached over water-quality controls for the rivers that flow from western China into Kazakhstan across their long shared border, and for co-operation in the fertilizer sector, which China views as strategically important as it looks to its neighbour for a new source of food.


"China has become the real great power in the region," says Shamil Midkhatovich Yenikeyeff, a research fellow at the Oxford Institute for Energy Studies.


"China represents the future [while] Russia represents the past ... China has an upper hand over Russia in terms of its cash power and in terms of effective implementation of large-scale projects."


Kazakhstan and Russia have maintained close ties ever since the two countries split during the dissolution of the Soviet Union, and Russia is still active in the oil and gas sector there. China and Russia are neck-and-neck in terms of bilateral trade with Kazakhstan, according to Kazakh customs data.


China began acquiring oil assets in Kazakhstan in the late 1990s, securing a new source of energy on its doorstep to fuel economic growth and reduce dependence on Middle East supplies. Chinese companies now have equity ownership of about a quarter of oil produced in the country, according to research from Visor Capital.


The central Asia nation is home to rich reserves of uranium, copper, gold, nickel – all materials that China needs to fuel its economic boom. The uranium agreement signed Tuesday will see Kazakhstan supply China with some 55,000 tonnes of the radioactive material, which is worth more than $8bn at current market prices, though terms of the deal were not disclosed.


China has also helped finance and build a pipeline to carry oil 1,000km from central Kazakhstan to its north western frontier that opened in 2007. The pipeline is now being expanded to span the whole length of Kazakhstan and provide China with access to huge oil resources in the Caspian Sea.


Kazakhstan has striven to balance its interests, sharing out oilfields between investors from Russia, China and the west. However, the financial crisis provided China with an opportunity to strengthen its grip on Kazakh oil and expand into the broader economy.


At the height of the crisis in 2009, China lent KazMunaigas, Kazakhstan's state oil company, $5bn pledged against future oil supplies. Separately China lent the Development Bank of Kazakhstan $5bn to support transport, telecommunications and agriculture projects to help diversify the economy away from oil and gas.


But the push of Chinese companies into Kazakhstan has raised some concerns about levels of Chinese influence in the country.


"What Kazakhstan doesn't want is to become a raw material appendage to China," says Michael Denison, head of research for the consultancy Control Risks.


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