China's Investment Strategy in Central Asia

 

October 5, 2010

Over the past few years, China has become a major player in Central Asia’s oil & gas and in Afghanistan’s mining sector. Its investments in the region are an important part of its worldwide FDI strategy.

To date, China’s biggest purchases of gas come from Turkmenistan. In 2009 the Chinese president inaugurated a gas pipeline that stretches for 4,000 miles from Turkmenistan via Kazakhstan and Uzbekistan to China. 30 billion cubic metres per year will be supplied by Turkmenistan, while 10 billion cubic metres will come from Kazakhstan’s gas fields. The vast amount of gas will supply some 50 percent of China’s gas needs, estimated at over 80 billion cubic metres per annum. The Chinese will pay USD 195/1,000 cubic metres over 30 years, thus bringing their country into competition with Russia, as well as the EU with its Nabucco pipeline project. To get to the Turkmen gas the Chinese paid around 3 billion USD necessary for the construction of the pipeline and the development of the fields.

In Kazakhstan, China National Petrol Corporation together with Kazmunay Gas inaugurated in 2006 a 2,200 km oil pipeline between Atyrau (Kazakhstan) and Xinjiang in China – the first such pipeline to connect China to the Central Asian oil & gas fields. In 2009 CNPC took a 50 percent stake in Kazakhstan’s largest oil & gas company, in exchange for a USD 5 billion loan to Kazakhstan.

This year Uzbekistan’s state company UzbekNeftegaz officially announced that it entered discussions with CNPC to supply China with 10 billion cubic metres of gas per annum, on top of the 40 billion cubic metres supplied jointly by Kazakhstan and Turkmenistan.

In Afghanistan, MCC of CHina has signed a 3,5 billion USD deal with the Afghan government to exploit Aynak’s estimated 240 million-ton copper deposits. To seal the deal, China has offered to build a railroad and provide the infrastructure needed, the project being the biggest FDI to date in Afghanistan. Chinese negotiators outfoxed their American and Indian competitors and worked – as they did elsewhere in Central Asia – closely with their Russian counterparts in order to finalise the deal. The Afghan government will also receive hundreds of millions of dollars every year in royalty fees after the mine becomes operational.

According to American, Australian and Canadian geologists, Afghanistan is the “Saudi Arabia of lithium” and also has significant deposits of gold, copper, cobalt and iron, which could not be exploited until now because of 50 years of continuous warfare that had ripped through the country. In the quest for Afghanistan’s mineral deposits, China is favoured to develop most of them, as it did not intervene militarily there and has Pakistan on its side. The latter in turn could help the Chinese to be shielded from attacks by the Taliban and even, if the political environment changes, to win their favour.

By contrast, the US – which spent a reported 940 billion USD over the past 8 years in Afghanistan – and their Indian ally are not likely to capitalise on the development of Afghanistan’s mining sector. (sources: Asian Times, Reuters, Xinhua, The Guardian, Far Eastern Economic Review, WSJ, Daily Finance, NYT)