Orbeli Analitical Research

Kazakhstani and Chinese Cooperation

12 m. | 2020-03-31

In recent years the Kazakhstan-China economic cooperation has taken place within the context of the Chinese New Silk Road strategic initiative launched in 2013. Also in collaboration with Kazakhstan’s Light Road (Nurly Zhol) State Infrastructure Development Program [1]. In December 2019, the Nurly Zhol State Infrastructure Development Program for the 2020-2025 year period was approved [2]. Beijing places great importance to both the transit-communication, logistics opportunities and the attraction of Chinese investment capital to the Kazakh market.

Between 2005-2019, China has made a total foreign direct investment (FDI) of $54.53 bil. in the five republics of Central Asia. Most of the Beijing FDI ($35.16bil.) was directed to Kazakhstan, which far exceeded that of the other states. The financial volume of Chinese FDI and transactions are also relatively high in Turkmenistan ($6.8bil.)but does not match that of Kazakhstan it is followed by Uzbekistan at ($5.69bil.). The lowest investment in the region recorded at ($2.5 bil.) for Tajikistan.

Source: https://www.aei.org/china-global-investment

Moreover, within the specified period, China’s investment in the five republics were mainly focused on the energy sector, followed by the transport sector. Uzbekistan is an exception in this regard, where the energy sector is followed by the real estate sector. As the chart shows, the financial volumes of China’s FDI and transactions in Kazakhstan’s energy sector are incomparable with the corresponding results of other republics.

Source https://www.aei.org/china-global-investment-tracker/

Kazakhstan attracted about $320 bil. FDI from more than 120 countries between 1993-2018: with Beijing’s share of about 5% [3],[4]. Only investments are calculated in that index and bilateral transactions are not included. Between 2005-2019, the energy sector accounted for most of China’s FDI and transactions, about $24.42 bil., with relatively high levels of expenditure on chemicals ($3.91) and transport ($3.54 bil.).

Source https://www.aei.org/china-global-investment-tracker/

Statistics show that between 2014-2018, exports from Kazakhstan to China exceeded imports making $6.3 bil. and imports made up $5.3 bil. in 2018.

Source: https://stat.gov.kz/edition/publication/collection

Between 2014-2016, bilateral trade turnover has steadily declined and since 2016 the trade turnover has started to provide a steady growth. Between 2014-2018, the highest result of bilateral trade turnover was about $17 bil., which was recorded in 2014. In 2018, China was the 2^nd in the list of key partners of Kazakhstan after Russia and Italy.

Source: https://stat.gov.kz/edition/publication/collection

China is the second largest export partner of Kazakhstan with its export-import results.

Source: https://stat.gov.kz/edition/publication/collection

In 2015, the Intergovernmental Framework Agreement on strengthening cooperation in the fields of industrialization and investment was signed between Kazakhstan and China. It gave launch of 55 joint Kazakh-China projects totaling over $27.6 bil. in Kazakhstan. The projects are aimed at mining, energy-gas, chemical industry, machinery, transport and other fields. As a result, about 20 thous. new jobs will be created [5].

Source: https://invest.gov.kz/ru/media-center/press

Statistics show, that 27% of the projects are implemented in the energy sector, the share of the gas and oil industry is also a decent portion of the overall investment. In the above mentioned 55 projects, according to investment funds, funds were directed to the oil and gas, as well as chemistry industry, where 12 projects are being implemented with a total investment of $13.909 billion.

Source: https://invest.gov.kz/ru/media-center/press

Based on calculation of the first 9 months of 2018, the largest foreign investor of Kazakhstan is the Netherlands with 27.4% of FDI. The second largest is the USA at (22.8%). Only the shares of the Netherlands and the USA make up more than 50.2% of the FDI total value implemented in Kazakhstan. Consequently, Switzerland (13%), Russia (6.8%) and China (6.7%) had the next highest results.

Source: https://invest.gov.kz/upload/iblock/54a

In 2017, JAC Brand Motors Production project launched in Kostanay, Kazakhstan, where the Kazakhstan side (Saryarka AvtoProm) was cooperating with two major Chinese companies, Anhui Jianghuai Automobile Co., Ltd (JAC) and China Vehicles Import-Export Co. (CMC). The parties had already signed an agreement on project implementations in 2015 [6].

In 2018, Saryarka AvtoProm domestic production company in Kazakhstan and Chinese CMC signed an agreement with which the Chinese side acquired 51% shares of Saryarka AvtoProm. Total investments in the project are estimated at $1.1 bil. Within the framework of production development strategy it is planned to produce cars under the brands JAC, ANKAI, HOWO, HANTENG together with the Chinese partners [7].

In May 2017, within the framework of “One Belt, One Road” international forum, KTZE-Khorgos Gateway company signed an investment agreement with Chinese COSCO Shipping Lines Co. Ltd and Lianyungang Port Holding Group Co. Ltd. on the joint development of Kazakhstan’s “Khorgos-Eastern Gate” Free Economic Zone. According to the agreement, Chinese investment companies jointly acquired 49% shares of Dry Port in FEZ.

The agreement will give an opportunity to turn the Khorgos-Eastern Gate FEZ into an international transit corridor for the storage and distribution of freight between Asia and Europe [8]. The FEZ area is 4 591.5 hectares and includes 3 zones: logistic, industrial, as well as transport-logistic complex of the Dry Port.

Source http://www.sezkhorgos.kz/photos/2

Based on another agreement signed between Kazakhstan’s Kalishen, Sakhaman and TEA Company and Chinese KELISON Industrial Co., Ltd companies, a technopark is planned to be built in the Khorgos-Eastern Gate FEZ area by 2025 [9].

Source: https://qz.com/1720196/who-visits-khorgos

In mid-2018, KazAzot, Cathay Industrial Biotech, Ltd. and CITIC Construction Co., Ltd. companies signed an agreement in Beijing on creating a biochemical cluster in Kazakhstan. The project is estimated at $2.5 bil., envisaging to introduce an innovative-technology-based deep-grain processing line with the aim of producing polyamide materials. It will be used for the production of synthetic fibers, plastics and polymers. Production will be fully exported. 2.5 bil. tons of grain will be processed annually. The project will be completed in 2023. Kazakh KazAzot company specializes in the production and export of ammonia [10].

Source: https://kapital.kz/economic/69799/kitayskaya

In September 2015, a mutual framework agreement was signed between Kazakh Tenir-Logistic Company and China Machinery Engineering Corporation on construction project of Chemical and Metallurgical Complex in Kazakhstan’s Pavlodar and Jambyl regions’ FEZ area. Tenir-Logistic plans to construct a complex of titanium, silicon and special steel dioxide production. The project will be completed in 2025.

In 2019, Kazakh KAZ Minerals and Chinese China Nonferrous Metal Industry՛s Foreign Engineering and Construction Company Ltd (NFC) companies signed an agreement, with which the Chinese company acquired 19.4% of the project shares of Kazakhstan’s Koksay Copper Mine (230km away from Almaty) worth $70 mil. The reserves of the mine are estimated at about 700mil. tons with an average of 0.42% copper. The project will be completed in 2023 [11].

In 2005, within the framework of the agreement signed with Eurasian Resources Group (ERG), China Nonferrous Metal Industry’s Foreign Engineering and Construction Company Ltd (NFC) established primary aluminum production (Kazakhstan Electrolysis Plant, 2006-2010) in Pavlodar, Kazakhstan [12],[13].

One of the major bilateral projects is the construction of the Kazakhstan-China Oil Pipeline, the founders of which are KazTransOil JSC (50% shares), CNODC (China National Oil and Gas Exploration and Development Corporation) Company (50% shares). Kazakhstan-China Pipeline Company is the owner of the bilateral oil pipeline and carries out the supply of oil through Atasu-Alashankou and Kenkiyak-Kumkol pipelines. The company was established in June 2004 based on the Framework Agreement on the Oil and Gas Exploration and Development Cooperation signed between Kazakhstan and China [14]. So as to implement the Kazakhstan-China oil pipeline project, it was required to supply oil from the Western regions of Kazakhstan and Aktobe to the Chinese market.

In December 2007 the project for the Kenkiyak-Kumkol oil pipeline’s construction was completed in September 2009. The capacity of Kenkiyak-Kumkol pipeline was 10 mil. tons of oil annually, with an annual expandability of up to 20 mil. The length of the pipeline is 794.2 km.. The diameter of the pipe is 813 mm. The investment value of Kenkiyak-Kumkol pipeline is $850 mil.

In December 2005, Atasu-Alashankou pipeline was launched (with a capacity of 10 mil. tons of oil annually, and up to 20 mil. annually since 2013). The length of the pipeline is 965.1 km, of which 2.2 km is located in China with the diameter of the pipeline 813 mm. The investment value of Atasu-Alashankou pipeline is $726 mil.

In 2018, Atasu-Alashankou pipeline supplied 11.4 mil. tons of oil and within the 6 months of 2019 about 5.5 mil. tons of oil. In 2018, the oil supplies of Kenkiyak-Kumkol pipeline were 4.9 mil., and within the 6 months of 2019, 2.7 mil. tons.

In December 2009, the opening ceremony of Turkmenistan-China gas pipeline took place, through which Turkmen gas was supplied to the Chinese market through the territory of Uzbekistan and Kazakhstan. The gas pipeline is about 7 thous. km in length, 188 km of which is running through the territory of Turkmenistan, 525 km in Uzbekistan and more than 1300 km in Kazakhstan and 4800 km in China [15]. The designed capacity of the pipeline is 40 billion cubic meters of natural gas annually [16], and the project has cost more than $6.5 billion. The construction of the pipeline was launched in 2007.

In 2019, China increased import volumes of natural gas through the Turkmenistan-China pipeline by 0.9%, bringing it up to 47.9 bil. cubic meters annually. Currently, Beijing gets more than 15% of gas consumption through the pipeline.

Kazakh section of the pipeline carries the Kazakhstan-China (Beineu-Bozoi-Shymkent) pipeline name. The annual capacity of the pipeline is 10 bil. cubic meters. It united the gas pipelines operating in Kazakhstan with a single internal gas supply network, which allowed Kazakh gas to be delivered to the southern regions of the country for the first time. It was exploited in November 2015 [17].

In October 2018, KazTransOil and PetroChina International Company Limited signed a five-year contract in Beijing on increasing the volume of Kazakh gas exports to 10 bil. cubic meters annually since 2019. It is envisaged to put into operation three high-tech compressor stations, which will increase the annual capacity of the Beineu-Bozoi-Shymkent by another 5 bil. cubic meters.

Gas supply network of Kazakhstan and Central Asia
Source: https://www.kaztransgas.kz/index.php/ru

One of the largest economic-investment bilateral projects is the completion of the international transit automobile corridor “Western Europe-Western China” [18]. About 8.5 thous.-km.-long transport corridor which originates in Northern Europe (St. Petersburg) stretching up to Western China (the end-point is Chinese Lianyungang). The total length of the automobile corridor passing through St. Petersburg-Almaty- Lianyungang highway is 8445 km., 2233 km. of which passes through Russia, 2787 km. through Kazakhstan and 3425 km. through China.

The project was launched in 2008, when Russia and Kazakhstan signed a memorandum on the development of the Europe-Western China transport corridor [19].

Initially the highway was planned to be put into operation in 2016, however, it was delayed because of the lack of a highway on the Russian section of the corridor. In October 2018, the Russian Government published a “Comprehensive plan for the modernization and expansion of the country’s trunk infrastructure” for 2018-2024, specifying terms and conditions for the construction of the Russian section of the “Western Europe-Western China” International Transport Corridor Project [20].The project envisages to build the Moscow-Nizhny Novgorod-Kazan highway, the bridge across the Volga River by 2024. The Chinese section of the highway was built in 2016.

An agreement was also reached to provide loans for financing “Western Europe-Western China” International Transport Corridor Project. The World Bank allocates funds in the amount of $2.125 bil., the Asian Bank ($700 mil.), Islamic Development Bank ($398 bil.) and the European Bank for Reconstruction and Development ($180 mil) [21]. The project will be exploited no sooner than in 2024.

One of the most important projects of bilateral cooperation in the field of transport is the construction of China-Kazakhstan Railway Corridor. As a result of the agreement reached between the state railway companies of Kazakhstan and China, Astana-Almaty-Urumqi railway (passenger) was launched in June 2017 [22].

Since August 2015, Poland-China container railway project between Poland and China started to operate. The railway having 9.8 thous. km length stretches from Chinese Chengdu city to Lodz, Poland. The Chinese operator is Chengdu International Railway Port and the Poland side is the Rail Transportation Service Broker (RTSB) Company. In September 2019, the railway reached the Polish city of Wroclaw.

Source: https://trans.info/lt/gruzyi-iz-chendu-vpervyie

In December 2014, the construction project for Kazakhstan-Turkmenistan-Iran International Railway Corridor (North-South Corridor) was launched [23]. Moreover, based on this project China-Kazakhstan-Turkmenistan-Iran railway started to operate, with a total length of thous. km. China-Kazakhstan-Turkmenistan-Iran railway enables fast logistics of cargo transportation from the eastern regions of China to the Persian Gulf markets.

Kazakhstan occupies its unique place in the New Silk Road, a transport and communication corridor linking Asia with Europe. With $170 bil. GDP, Kazakhstan is one of the major markets for the consumption and investment flow of Chinese goods. Within the “One Belt, One Road” initiative’s context, economic cooperation is mutually important in terms of Western and Russian economic-investment capital in the Kazakh economy, as well as diversification of transport and communication routes of the republic.

[1] http://www.mfa.kz/ru/tashkent/content-view/nurly-zol

[2] https://www.baiterek.gov.kz/ru/programma-nurly-zhol

[3] https://invest.gov.kz/ru/media-center/press-releases

[4] https://invest.gov.kz/upload/iblock/54a/54

[5] https://invest.gov.kz/ru/media-center/press

[6] http://sap.com.kz/index.php/novosty/198-kazakhstan

[7] https://inbusiness.kz/ru/last/kitajskaya-sms-voshla

[8] https://www.nur.kz/1493173-cosco-shipping

[9] https://inbusiness.kz/ru/news/opublikovana-chast

[10] https://kapital.kz/economic/69799/kitayskaya-kompaniya

[11] https://kursiv.kz/news/kompanii/2019-07/kitayskaya

[12] http://metalmininginfo.kz/archives/2188