Chinese enterprises in Kazakhstan face challenges over sour bilateral relations

A panoramic view of Astana.

The bilateral relationship between China and Kazakhstan is apparently facing serious challenges, which could negatively impact Chinese enterprises in the country.

In the first week of April, over 100 workers building a road in Kazakhstan’s southern Zhambyl region downed their tools. The road through Kyzylorda is part of the $9-billion Nurly Zhol infrastructure program that Kazakhstan rolled out in 2014.

The workers were reportedly dissatisfied with working conditions and salaries offered by the Chinese subcontractor, China Xinxing Construction & Development Co. Their earnings were between $130 and $260 per month for 10-hour workdays. The Chinese company even failed to provide them appropriate clothes for work. 

Worker unrest has been rippling across Kazakhstan in recent months and this latest strike is likely to cause a reappraisal by Chinese investors.

Early January this year, access to the internet was restricted during mass protests that turned violent.

Protests erupted in Kazakhstan over a twofold hike in fuel prices. In light of the violence that followed, Kazakh President Kassym-Jomart Tokayev declared a nationwide state of emergency, effective until January 19, and invited the Collective Security Treaty Organization peacekeeping forces to help bring the situation under control. 

At least 164 people were killed and more than 5,000 detained during the violent upheaval turmoil that swept the country.

Nearly 125 criminal cases related to the incident of violence had been opened by the police officials. These cases also include allegations of assault, murder, and robbery.

Chinese investment and implementation of key projects are already facing delays. Since the outbreak of Covid-19, the energy, chemical and infrastructure projects undertaken by Chinese enterprises in Kazakhstan have been hit hard by shortage of workers and logistics constraints.

Kazakhstan, located on China’s northwest border, is the largest landlocked country in the world. 

Its strategic position between China and Russia makes it a crucial link in China’s Belt and Road Initiative (BRI), also because it possesses abundant oil and mineral reserves. 

As a matter of fact, Kazakhstan established a Comprehensive Strategic Partnership with China in 2019.

Furthermore, China is one of Kazakhstan’s leading trade and investment partners – in 2021, total bilateral trade reached $22.94 billion.

Additionally, by the end of 2019 China had accumulated investments worth $29.43 billion in Kazakhstan, advanced loans of more than $50 billion, cornered contracts for various projects totaling about $37.6 billion and the number of Chinese enterprises registered and operating in Kazakhstan exceeded 1000.

China also imported 4.02 million tonnes of natural gas from Kazakhstan between January and November 2021.

The bulk of Kazakhstan’s road and rail networks are in dire need of up-gradation and expansion having remained neglected in the aftermath of the Soviet Union collapse.

However, the country lacks the requisite financial wherewithal and thus Nur-Sultan has courted billions of dollars in Chinese investments.

 In 2016 alone, the two countries struck deals for over 50 joint projects, with Kazakhstan promoting itself as the “joining ends” of the BRI. However, only a few have come to fruition till date. In Kazakhstan’s 14 provincial administrations, 24 out of 542 projects had been completed and most projects are at various stages of completion involving Chinese investors.

Popular opposition to Chinese investments has fomented several political protests since 2016, and continues to fester in many others. 

According to the Chinese Embassy in Kazakhstan, China had invested $19.2 billion in the country between 2005-20 and 56 China-backed projects worth nearly $24.5 billion are due to finish by 2023.

Meanwhile, Kazakhstan has seen several Chinese pull-outs in the recent past. 

In the Aktobe regional administration, in Kazakhstan’s oil-rich west, a Chinese firm backed out of a $35-million project to produce carbon black, a sooty crude oil derivative used in a number of industrial settings, including tire manufacturing. Likewise, in 2020 Chinese firms withdrew from a $1.4 billion fertilizer production project in the same region, a tungsten development project worth nearly $1 billion in the central Karaganda region, and a deal to build a silicon plant worth $115 million in the northern region of Pavlodar.

Further, China Triumph International, a subsidiary of China National Building Material (CNBM), is alleged to have embezzled over $3 million in a float glass factory in Kyzylorda.  

It has often been perceived by the local populace that Chinese companies were encouraging corruption.

The Chinese embassy in Kazakhstan has reportedly issued a security risk alert to Chinese companies advising them to closely monitor the developing situation.

The unrest may impact on Chinese businesses and on the gas pipelines running between the two countries.

While Kazakhstan’s regime is still keen for Chinese investment, the socioeconomic fragility that helped spark the nationwide protests in early January may force the government to be more responsive to local concerns. Beijing may not find Kazakhstan to be the entirely secure and predictable neighbor that it was.