By All Means Necessary (24 page)

Chinese engagement with Central Asia has also diverged sharply from its conflict with its South and East China Seas neighbors over regional oil and gas resources. Chinese security policy toward Central Asia has lacked a fierce desire to claim land on behalf of China. As China security expert M. Taylor Fravel observes, with the fall of communism in Central Asia, China eagerly developed enhanced security ties rather than acquiring disputed land.
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In contrast to its current policy toward the Diaoyu/Senkaku Islands, Beijing did not take a hard-line approach on border disputes in Central Asia. Those issues were viewed as second-tier matters; creating stability along the border between Central Asia and the Xinjiang region, Beijing believed, trumped other concerns.
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Chinese involvement in Central Asian oil and gas has thus occurred in an already established context dominated by traditional security concerns. International oil companies bought up resources immediately after the fall of the Soviet Union. But CNPC, the first Chinese company to enter Central Asia, did not make its first oil or gas field acquisition, Kazakhstan's Aktobe field, until 1997. Since then, CNPC has been the most active Chinese oil company in the region. In 2005, it bought a 67 percent stake in PetroKazakhstan, a Canadian-based company focused on Kazakh oil, for $4.2 billion.
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That was followed in 2009 by the joint purchase (with KazMunaiGas) of MungistauMunaiGas for $2.6 billion.
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Sinopec, CNOOC, Sinochem, and CITIC have all acquired smaller stakes in the Kazakh oil and gas production industry. (CIC has also acquired portfolio interest in Kazakh oil and gas.) By 2010, Chinese
companies owned a larger share of oil production in Kazakhstan than in any other country.
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Still, with the share at 23 percent, the Chinese position was far from dominant. Moreover, even with Kazakhstan so physically close to China, not all of its equity production was shipped there; CNPC makes oil shipment decisions on the basis of profit opportunities rather than blindly sending its oil to China.
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The remainder of Chinese oil and gas investment in Central Asia has focused on Turkmenistan. In 2009, the China Development Bank agreed to loan Turkmengaz $4 billion for the development of the South Yolotan, or Galkynysh, gas field, secured by payments for exports of natural gas to China.
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CNPC and Turkmengaz are jointly developing the field, which began supplying gas in September 2013.
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This is reportedly the only instance of a Chinese loan “directly linked to an upstream role for a Chinese NOC [national oil company].”
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But CNPC has still not been able to secure an equity stake in the project; it operates as a service provider.
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Chinese efforts to build pipelines that connect its markets to Central Asia are probably of greater strategic importance to Beijing than oil and gas investment itself. These pipelines can also do considerably more to change the international economic and security landscape. Two pipeline projects have occupied center stage. The China-Kazakhstan pipeline runs from the Atyrau port in northwestern Kazakhstan to China's Xinjiang province in the northwest. It covers a total of 1, 384 miles and has a capacity of 240, 000 barrels a day of crude oil, equal to about 5 percent of Chinese oil imports.
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Developed by the Sino-Kazakh Pipeline Company, a joint venture between CNPC and KazMunaiGaz, this was China's first transnational pipeline.
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The underlying agreement was signed in 1997, and the line became operational in 2006. In 2007, China and Kazakhstan agreed to an extension by about 400 miles westward.
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This began operating in 2009 and extended the pipeline to oilfields in western Kazakhstan near the Caspian Sea.
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The capacity is currently being expanded and is expected to reach 400, 000 barrels a day by 2014.
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The second major pipeline project is the Central Asian Gas Pipeline (CAGP), which brings natural gas from Turkmenistan, Uzbekistan, and Kazakhstan (this last primarily a transit country) to China. It runs for 1, 130 miles and has a capacity of 3.8 billion cubic feet a day of gas.
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The CAGP became operational in 2009 and connects to another pipeline at the border of China that runs eastward. In 2011, China imported 1.4 bcf a day from the CAGP, far below its full capacity.
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Experience with the CAGP shows how Chinese state entities can spur construction of infrastructure that is seen as critical to resource security. The CAGP is financed by a loan from CDB.
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It is further backed by a commitment from China to buy a minimum quantity of gas delivered by the pipeline; proceeds from those sales will likely be directed first toward paying off the loan.
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Whatever the underlying motivation for building these pipelines—commercial or strategic—the pipelines can serve a similar function to those the United States has tried to support from Central Asia to the West, increasing the independence of Central Asian countries by giving them an alternative to Russia. In this sense China, which is able to combine political support for pipeline construction with financial muscle and a ready market, may have more ability to achieve what were once U.S. ends. But there are large differences between the two countries' courses: establishing fixed pipelines to China increases Central Asian dependence on Beijing, making Central Asian states more vulnerable to Chinese influence and politics, including decisions to halt purchases down the road. Moreover, whatever the motive, increased pipeline-based supplies from Central Asia could raise the stakes and difficulty for any U.S. (or Indian or Russian) effort to cut Chinese oil and gas supply lines during a future war.

China has developed a strong and expanding set of resource arrangements with its Central Asian neighbors that not only helps ensure access to energy supplies but also enhances Beijing's broader security interests. Although conflict is unlikely to emerge surrounding Chinese engagement in Central Asia's energy resources, its management of shared water resources has provoked consternation in at
least one of its Central Asian neighbors—and several other countries in the region as well.

Shared water resources pose their own distinct challenges. In some ways these challenges are even more acute than those related to oil and gas in Central Asia and the South and East China Seas. Both China and its neighbors can choose to procure oil and gas from beyond the South and East China Seas if they choose to do so. Meanwhile Chinese investment in Central Asian oil and gas can be done in a way that creates benefits for all the parties involved. Water, in contrast, comes far closer to creating inescapable and zero-sum competition. Damming of rivers to generate hydroelectric power alters how water flows, which can harm fisheries and agricultural activity downstream. When river waters are permanently diverted for irrigation, energy production, or similar operations that permanently consume the water (unlike hydroelectric dams) can harm those who share the water resources more than damming for hydroelectric power. This potential for real damage is often compounded by poor or nonexistent information sharing between China and others with which it shares rivers. Real problems are exacerbated when a lack of information makes them less manageable, and phantom problems can become a source of conflict when there is insufficient information available to sort out myth from reality. Three cases shed light on these issues and help distinguish inevitable conflict from situations where more potential for cooperation exists.

China and Kazakhstan share around twenty rivers. The most notable are the Ili, which begins in China's Tianshan Mountains and passes through Kazakhstan into that country's Lake Balkhash, and the Irtysh, which starts in the Altay Mountains in China and runs through Kazakhstan before joining up with the Russian Ob River. Both rivers factor prominently in China's plans for development in
the sensitive Xinjiang region. In 2000, China launched an ambitious campaign of “Western Development” to promote economic growth across six provinces and five autonomous regions in the west of the country. Vital to this strategy has been a set of massive programs seeking to raise economic productivity in the Xinjiang region as part of the government's effort to blunt separatist and anti-Beijing sentiments. A core focus of this effort has been on agriculture and oil production, both of which require large amounts of water. China has been building canal systems that divert increasing amounts of water from the Ili and Irtysh toward these purposes.

Information about Chinese activities is fragmentary and inconsistent, but analysts largely agree that the plans threaten to be of significant detriment to Kazakhstan, and to a lesser extent Russia. The Ili and Irtysh both provide water for crucial agricultural and industrial sections of central and eastern Kazakhstan. According to Stephen Blank, diverting large amounts of water from the Ili and Irtysh will “slash freshwater inflow to eastern and Central Kazakhstan, ” putting the sixth-, seventh-, and eighth-largest cities in Kazakhstan “on the brink of full water deficiency” while “[drying] up the Irtysh-Karaganda canal, ” which figures prominently in Kazakhstan's own hydroelectric power production.
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Chinese diversion of water for its own economic purposes thus poses risks to economic development downstream.

Fears extend to environmental consequences as well. Lake Balkhash, one of the world's largest, receives well over half of its inflow from the Ili River.
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The United Nations Development Programme (UNDP) has warned that a fall in the lake's water supply could turn it into an “environmental tragedy comparable to the Aral Sea disaster, ” and Eric Hagt at the Center for Strategic and International Studies has written that “the shallowing of the rivers and shrinkage of the Balkhash and Zaysan Lakes [in eastern Kazakhstan] could have environmental repercussions such as salinization and micro-climate change—similar to the problems of the Aral Sea region.”
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The Aral Sea, straddling Kazakhstan and Uzbekistan and once one of the four largest lakes in the world, essentially disappeared as a result of Soviet irrigation projects.

Efforts at bilateral cooperation between China and Kazakhstan have yielded some meaningful outcomes for water quality monitoring, but a resolution to the issue of allocation remains elusive. Shortly after Kazakhstan's independence in 1991, the Kazakh ambassador to China, Murat Auezov, attempted but failed to negotiate an agreed approach. His government later tried to bring in Russia, whose Omsk region relies on the Ob River flowing from the Irtysh, into a set of three-party negotiations. But Russia demurred. Public sentiment in Kazakhstan escalated against Chinese activities in the late 1990s as news of the canal plans began to sound alarm bells, and finally a framework agreement was signed in 2001 to facilitate transboundary cooperation.
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The agreement did not, however, cover measures relating to the allocation of water between the two countries—the most crucial of several transboundary issues to be resolved. Instead, a Sino-Kazakh consultative commission was created. The Chinese side rebuffed Kazakh efforts to trade free and subsidized food for allowing the natural, unimpeded flow of river water. In 2006, the commission produced a draft on water quality dissemination responsibilities between the two countries, a precursor to a 2011 Agreement on Water Quality in Transboundary Waters between China and Kazakhstan, obligating both sides to monitor water quality.
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Still, the Kazakh government continues to push the Chinese side to negotiate. Kazakh vice minister of agriculture Marat Tolibayev underscored the urgency of the situation in December 2012: “Water diverting is growing exponentially and we understand that procrastination [with regards to a possible agreement] is getting more dangerous for Kazakhstan and we are trying to secure an agreement in 2015.” Yet the two sides have been unable to come to an agreement on proper sharing of the resource.
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In January 2013, an agreement was reached to construct waterworks facilities that would aid in “equitable distribution” of water resources on several of the transborder rivers.
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China and Kazakhstan are also conducting scientific research on transborder river issues. The research is expected to be completed in 2014, with an eye toward informing later agreement.

Disputes over the Ili and Irtysh are likely to constitute an early test of whether technical cooperation can facilitate agreement between China and its neighbors on more fundamental resource issues. Current engagement between China and Kazakhstan should help yield a better understanding of which Chinese activities would leave Kazakhstan relatively unharmed and which can come only at the expense of Kazakh prosperity. At that point, any resolution will depend on decisions in Beijing and Astana. China could, in principle, simply take whatever water it wishes, since Kazakhstan lacks the capability to stop it. But Kazakhstan may be able to leverage Chinese interests in investing in and developing Kazakh oil and copper resources, as well as exert political pressure through the Shanghai Cooperation Organization Forum.
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The Mekong River presents a different sort of challenge. Starting in the Tibetan-Qinghai Plateau, the Mekong flows 3, 050 miles south through China's Yunnan Province, where it is called the Lancang River, into Southeast Asia; the river crosses Burma, Vietnam, Laos, Thailand, and Cambodia before emptying into the South China Sea. About a quarter of the water originates in China and Burma; so does roughly half of the total sediment, the material responsible for creating fertile agricultural conditions downstream.
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More than seventy million people reside in the Mekong basin, variously depending on it for drinking water, fish, irrigation, transportation, energy, and agriculture.
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