Agriculture, Commodities, Emerging Markets, Energy, Frontier Markets

Causes And Consequences Of China’s Upturn In Kazakhstan

By Da Vinci Analytic Group

Chinese Premier Li Keqiang (left) meets President of Kazakhstan Nursultan Nazarbayev (right) in Astana, Kazakhstan on December 14, 2014.  Photo courtesy of Xinhua.

Chinese Premier Li Keqiang (left) meets President of Kazakhstan Nursultan Nazarbayev (right) in Astana, Kazakhstan on December 14, 2014. Photo courtesy of Xinhua.

In the middle of December, China and Kazakhstan reached historical agreements that are likely to reverse the situation in the whole Central Asian region and slash Russia’s standing there. The representatives of Beijing and Astana signed a wide range of documents on economic cooperation triggering geopolitical developments. The signatories estimate the total amount of the agreements reached at the level of USD 14 billion.

The agreements reached specifically refer to:

  • Mutual settlement of accounts in national currencies, as well as currency swap for Kazakhstani tenge/Chinese Yuan totaling CNY 7 billion/KZT 200 billion;
  • Nuclear industry cooperation, particularly, building up joint nuclear fuel plants within the territory of Kazakhstan;
  • Shifting of non-resource plants from China to the east of Kazakhstan;
  • The Khorgos International Centre of Boundary Cooperation control;
  • Joint promotion of the Silk Road Economic Belt;
  • Maintenance of power supplies from Kazakhstan to China and electricity transit through China’s territory to the third countries;
  • Supplies of foodstuffs from Kazakhstan to China;
  • Financial backing of Chinese equipment leasing while building up glass and cement making capacities as well as constructing power plants;
  • Kazakhstan-China Investment Fund establishing.

The agreements between China and Kazakhstan logically continue a long-term cooperation having moved to a new level. The fact that they have been reached under current geo-economic and geopolitical conditions speaks for the trends that are global for the region.

Kazakhstan has made a strategic choice in favor of China, not Russia. Nursultan Nazarbayev’s geopolitical strategy was traditionally based on two main principles. First, geo-economy has always prevailed over geopolitics for Kazakhstan. Second, Kazakhstan used to build up its strategy on the basis of balancing between the interests of China, Russia, and the Western World, playing the regional leader’s role.

The developments in Ukraine have affected the viewpoints of Kazakhstan’s elites. Threat of Russia’s expansion into the Mining Altai region, concentrating mineral and raw materials potential of the republic, drove Kazakhstan to have more attentive relation to Kremlin and seek for an opportunity to provide protection against possible aggression. Only China could provide such protection for the republic under current conditions, being traditionally interested in Kazakhstan’s resources and transit. Meanwhile, Kazakhstan’s strategy is again based on the economic mechanisms’ domination over the political ones. While encouraging multibillion Chinese investment, Astana is not only spurring its economy, but is also obtaining China’s security guarantees for the joint projects, thus practically undermining direct Russia’s expansion.

The second key factor having altered Astana’s standpoint was Kremlin’s shifting of the Eurasian Union project from the geo-economic level to the geopolitical one. Moscow’s will to control Kazakhstan’s external borders, attempt to drag Astana into a definitely losing game of backing Russia’s anti-Western sanctions, and putting Kazakhstan’s manufacturers under pressure have significantly dampened Astana’s enthusiasm towards the EAEU. Russia’s attempts to build up an imperial geopolitical project based on the geo-economic cooperation project run into strong opposition of Kazakhstan’s leadership. Russia’s stickto-itiveness in furthering its own interests on account of its Union partners resulted, first, in attempting to hedge the geopolitical risks and ultimately in changing the vector and trying to defend by virtue of an alternative partner China has appeared for.

The decision of Kazakhstan’s leadership on changing geopolitical priorities was not scattershot. The remarkable thing is that Kazakhstan’s New Economic Policy “Nur Jol” initiated by Nursultan Nazarbayev does not pay much attention to Russia, while the EAEU project is not mentioned there at all. Kremlin does not stand as Kazakhstan’s dominant partner, but nearly all Astana’s projects are currently focused on expanding cooperation with China. For example, the program, quoted a lot at the recent Kazakhstan-China meeting, says nothing about cooperation boost, common initiatives, financial backing, crediting, or project investment within the territory of Kazakhstan on the part of Russia or its companies. At the same time, the ADB, the EBRD, the IDB, and the World Bank are mentioned as financial donors.

Concurrently, the development of the “Khorgos – Eastern Gate” SEZ, directly China-focused, is mentioned among the key Kazakhstan’s priorities. It foresees enlivening trade with China and rearranging the flows coming from this state to the EU, Russia, Iran, Ukraine, Turkey, Georgia, and the UAE. Russia, in that context, acts mainly as the key, but not the sole transit state.

Proceeding from the current strategy, Kazakhstan will place its stake on the Caspian direction that insures it against the risks caused by a possible unrest in Russia or by Moscow’s failing to fulfill its obligations. Even as of today, the Western Europe-Western China joint transport corridor, created by China, Kazakhstan, and Russia, having supposed to connect the Baltics to the Yellow Sea addresses the issues of Russia’s failing to implement it, because Russia is unable to provide neither qualitative execution of work according to the international standards nor meeting of deadlines. The unfolding economic crisis makes Russia’s carrying-out of its obligations even more illusive, thus raising questions about the prospects of the “northern” route and giving priority to the Caspian direction with further transit in the southern direction.

That is of interest not only to Kazakhstan, but also to China that is actively working up a question of infrastructure and transport cooperation with the countries of Central and Southern Europe, particularly with Greece, Macedonia, Serbia, and Hungary. But under all options of transit flows coming from China to Europe, Iran, Turkey, or the UAE – Kazakhstan is playing a key role for Beijing as a transit hub. Enhancement of cooperation in this direction will be Astana’s guarantee in the issue of protection not only against direct Russia’s aggression within the framework of a hybrid war outbreak, but also in the issue of protecting Kazakhstan’s leadership against Kremlin’s attempt to inspire a coup d’Etat in an effort to reserve the zone of influence.

Judging from the latest regional trends we are expecting:

  1. Gradual decline of the EAEU role in the region and Kazakhstan’s participation rate in it. All efforts in promoting Russia’s influence inside the organization or attempts to further transform the organization into a geopolitical block or, moreover, military and political one will be blocked up. At the same time, Kazakhstan will not suspend cooperation with Russia, reserving the opportunity for taking advantage of its transit potential, concurrently building up cooperation with China.

  1. Kazakhstan’s standpoint will become a signal for other Central Asian Republics. First of all, this refers to Kyrgyzstan and Uzbekistan. Next year China will make an effort to strengthen in all Central Asian states, having pushed Russia out of there, thus depriving it of the opportunity to make adequate steps under economic crisis and international isolation. Kazakhstan, in its turn, will make an effort to step up regional leadership in Central Asia amid shared threats.

  1. Enhanced cooperation between China and Kazakhstan, Iran, and Turkey is expected as part of the common infrastructure projects. The investments in Kazakhstan’s ports at the Caspian Sea will ramp up, and the trade will get a new quality impetus. But in this context, Russia is expected to stir up the problems related to the Caspian Sea area. In this regard, a global geopolitical bargaining is possible, touching upon the common interests of Russia and China not only in the Caspian Sea and Central Asia issue, but also that of the Far East and Siberia.

  1. In case of secessionist moods escalation in the Mining Altai region through Russia’s collusion (or that of the part of Russia’s elite), secessionist moods are expected to outbreak in the south of Bashkortostan, as well as in Orenburg Oblast (particularly in Kuvandyksky and Gaysky Districts); in the Tyva Republic; in the Altai Republic (in Ongudaysky, Ulagansky, Ust-Kansky, and Kosh-Agachsky Districts).

Courtesy of By Da Vinci Analytic Group

Da Vinci AG is analytic, consulting and intelligence company.

© Da Vinci AG


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