China BRI Ventures Run Into Trouble in Kazakhstan

Chinese, Kazakh governments insist all’s well despite signs of strain on the ground

By Yigal Chazan

A trade and investment partnership between China and Kazakhstan, seen as key to Beijing’s Belt and Road Initiative (BRI) in Central Asia, is creaking as flagship projects run into trouble and Kazakhs voice distrust of their eastern neighbor’s economic overtures.

Recent protests in several Kazakh cities about purported Chinese plans to relocate industrial plants to Kazakhstan, coupled with rising tensions over Beijing’s alleged harsh treatment of ethnic Kazakhs in western China, underline the challenges facing the authorities in both countries as they seek to strengthen economic ties.

Central to the trillion-dollar BRI project, a series of land and maritime economic corridors linking China with the West, is a bid to revive the old ‘Silk Road’ across Central Asia. Kazakhstan is regarded as the most important staging post, as it borders China, spans much of the region and has its biggest economy. The country has described itself as the “buckle” in the trade and infrastructure project, and China has backed the Astana International Financial Center, one of whose primary goals is to help raise finance for BRI projects.

A part of the now-defunct Soviet Union traditionally seen as Russia’s backyard, Central Asia is increasingly coming under China’s economic sway as impoverished countries such as Tajikistan and Kyrgyzstan embrace BRI-linked Chinese investment. With its vast energy wealth and proximity to China, Kazakhstan has been the focus of Beijing’s attention, becoming one of the country’s largest commercial partners. The Kazakh authorities, in turn, hope Chinese investment will help to develop infrastructure and diversify their energy-based economy.

Bilateral trade grew by 11.4 percent to US$12 billion in 2018. And while the European Union and Russia have accounted for more than half of foreign direct investment since 2010, Beijing’s contribution is not insignificant. In 2015, China agreed to some 55 joint projects in Kazakhstan, valued at US$27.6 billion, 15 of which, worth US$3.9 billion, had been implemented as of last September. Around half of the investment has been earmarked for the oil and gas sector, with mining another big recipient. The Kazak authorities expect the program to create 20,000 permanent jobs, the lion’s share for their citizens. 

With China viewing Kazakhstan as a key component of its regional transport infrastructure plans, much attention has centered on the country’s most high-profile BRI enterprise. The Khorgos transshipment hub, a so-called dry port, lies close to the border with China and is important because the two countries have different rail gauges. Here cranes load Chinese rail freight onto Kazakh trains bound for Western European markets. The 6 sq km hub includes a special economic zone (SEZ) and a visa-free, duty-free shopping complex straddling the frontier, which attracts thousands of Kazakh and other Central Asians looking for cut-price products.

A great deal has been made of the economic benefit of the Central Asian rail link and the Khorgos hub to Kazakhstan, China and the wider region. Yet doubts have been raised about their commercial viability. The SEZ was recently described in Foreign Policy as “mostly empty desert” and Beijing currently subsidizes rail shipments. There have been reports of empty freight cars running to and from Western Europe – though the authorities insist this has ceased. While the railway connection is faster than the sea route, it is more expensive. That and a combination of Europe’s weak economy and the US-China trade war may explain slowing growth in the hub’s cargo handling, with the facility said to be operating well below capacity.

Another flagship BRI project looks to be in bigger trouble. A China-financed light-railway scheme for the capital Nur-Sultan, formerly Astana, which should have been ready for the 2017 Expo exhibition, is only partially built. China stopped financing development of the 22-km network in October 2018 following the collapse of the local bank holding its funds. In June 2019 the Kazakh authorities indicated that they would borrow domestically to complete construction. Then in October President Kassym-Jomart Tokayev ordered a probe into former officials associated with the project. He expressed scathing criticism, saying it was “very questionable,” “economically incomprehensible” and that “those behind it must be held to account,” the state anti-corruption body subsequently announcing that around a dozen people are under investigation.

Of arguably greater concern for the Kazakh authorities is that it appears that China’s investments have had limited trickle-down effect. Kazakhs are aggrieved about the use of Chinese labor and contractors for projects. And there is also a perception that local elites are the main immediate beneficiaries.

Aggravating these tensions is China’s reported persecution of Muslims in the neighboring Chinese province of Xinjiang, which has targeted local Uighurs as well as other Muslim groups including ethnic Kazakhs, estimated to number 1.5 million. Indeed, it was an ethnic Kazakh woman, Saytagul Sauytbay, a former instructor at one of the Xinjiang “re-education” camps, who revealed alleged abuses there when she was tried in Kazakhstan in 2018 after entering the country illegally. The court in Zharkent convicted her of the offense, but imposed a suspended sentence and, tellingly, did not deport her.

The decision underlines a dilemma faced by Kazakh authorities trying to balance the interests of their citizens with those of the country’s biggest trading partner. Two years before, the government similarly gave way to public opinion, shelving plans to allow foreigners to lease agricultural land after widespread protests, driven in large part by concerns that it could be acquired by Chinese investors.

Simmering anti-Chinese sentiment burst out into the open again in September last year in protests over alleged plans by China to relocate a number of factories to Kazakhstan, concerns focusing on their impact on the environment. Kazakh officials denied there were any such plans. But the gatherings, initially confined to a city in the southwest of the country, gained momentum, spreading to other urban centers, with demonstrators raising other issues including the alleged persecution of Kazakhs in Xinjiang and claims that migrants from China are taking local jobs. 

Public anger took on a highly political dimension in rallies staged in Almaty, Nur-Sultan and other cities organized by the banned opposition party the Democratic Choice of Kazakhstan, in which several dozen protesters were detained. Anti-Chinese rhetoric was mixed with calls for the freeing of political prisoners and for ex-leader Nursultan Nazarbayev to step aside. Though Nazarbayev resigned as president in March of 2019, he retains significant influence behind the scenes. 

In a 2017 survey of Kazakh perceptions of Chinese expansionism by the Institute of World Economics and Politics, 20 percent of respondents said there was a clear threat of the intensification of China’s influence in Kazakhstan. An albeit much smaller study a year later by a Harvard Kennedy School graduate suggested that most Kazakhs would prefer to see FDI coming from the European Union and the US, with fewer than a fifth expressing positive views about the BRI. 

While Kazakh political elites are prioritizing economic ties with China, they appear to be struggling to communicate the benefits to their citizens, a challenging task given the situation in Xinjiang and an apparent perception that China is more of a predator than a partner. For as the September events demonstrate, disaffection over the economic partnership can quickly be politicized – which Tokayev is acutely aware of. As he seeks to consolidate his own position in the shadow of Nazarbayev, he will need to start turning promises of public dividends into something tangible. 

Yigal Chazan is the head of content at Alaco, a London-based business intelligence consultancy.