Chinese companies in Kazakhstan face challenges over sour bilateral ties

A panoramic view of Astana.

Bilateral relations between China and Kazakhstan are apparently facing serious challenges, which could negatively impact Chinese companies in the country.

In the first week of April, more than 100 workers constructing a road in the Zhambyl region of southern Kazakhstan knocked down 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 the working conditions and wages offered by the Chinese contractor, 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 with appropriate clothing for the job.

Labor unrest has spread to Kazakhstan in recent months and this latest strike is likely to prompt a reassessment by Chinese investors.

In early January this year, internet access was restricted during mass protests that turned violent.

Protests have erupted in Kazakhstan over a double hike in fuel prices. In light of the ensuing violence, Kazakh President Kassym-Jomart Tokayev declared a national state of emergency, in effect until January 19, and invited peacekeepers from the Treaty Organization of collective security to help bring the situation under control.

At least 164 people have been killed and more than 5,000 detained in the violent upheavals that have swept the country.

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

Chinese investments and the implementation of key projects are already facing delays. Since the Covid-19 outbreak, energy, chemical and infrastructure projects undertaken by Chinese companies in Kazakhstan have been hit hard by labor shortages and logistical constraints.

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

Its strategic position between China and Russia makes it a crucial link in the Chinese Belt and Road Initiative (BRI), in particular because it has abundant reserves of oil and minerals.

In fact, Kazakhstan established a comprehensive strategic partnership with China in 2019.

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

Moreover, by the end of 2019, China had accumulated investments worth $29.43 billion in Kazakhstan, advanced loans of more than $50 billion, grabbed contracts for various projects totaling about 37, 6 billion dollars and the number of Chinese companies registered and operating in Kazakhstan exceeded 1000.

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

Most of Kazakhstan’s road and rail networks are in dire need of modernization and expansion, having remained neglected following the collapse of the Soviet Union.

However, the country does not have the required financial means and therefore Nour-Sultan has courted billions of dollars of Chinese investments.

In 2016 alone, the two countries entered into agreements for more than 50 joint projects, with Kazakhstan billing itself as the “common ends” of the BRI. However, only a few have materialized so far. In Kazakhstan’s 14 provincial governments, 24 out of 542 projects have been completed, and most of the projects are in 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 has invested $19.2 billion in the country between 2005 and 2020, and 56 Chinese-backed projects worth nearly $24.5 billion are to be completed. 2023.

Meanwhile, Kazakhstan has seen several Chinese withdrawals in the recent past.

In the Aktobe regional administration in Kazakhstan’s oil-rich west, a Chinese company has scrapped a $35 million project to produce carbon black, a sooty crude oil derivative used in a certain number of industrial contexts, including tire manufacturing. Similarly, in 2020, Chinese companies withdrew from a $1.4 billion fertilizer production project in the same region, a tungsten development project worth almost a billion in the central region of Karaganda and an agreement to build a silicon plant worth $115 million in the northern region of Pavlodar. .

In addition, China Triumph International, a subsidiary of China National Building Material (CNBM), allegedly embezzled more than $3 million from a float glass factory in Kyzylorda.

It was often perceived by the local population that Chinese companies encouraged 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 could impact Chinese businesses and gas pipelines connecting the two countries.

While Kazakhstan’s regime is still interested in Chinese investment, the socio-economic fragility that helped spark nationwide protests in early January could 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 used to be.

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