The Measures China is taking to cooperate with Central Asian Countries

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The "Twelfth Five-Year Plan” further proposes to promote energy production and change of usage patterns, giving priority to thrift, reliance on domestic production, diversified development, protection of the environment, strengthening of international cooperation for mutual benefit, adjusting and optimizing the energy structure to construct a safe, stable, economical and clean modern energy industry system.

Moreover, it addresses rational planning, enhancement and construction of energy storage facilities, and improvement of the system of crude oil reserves, natural gas and coal reserves and strengthening of emergency response to maximum capacity usage scenarios as capacity building measures. The construction of oil and gas import strategic channels in the northwest, northeast, and southwest regions of China, as well as offshore. Also it urges the improvement of China’s oil and gas trunk pipeline network. Adherence to policies which should be integrated for the deepening of international energy development and processing of information and mutually beneficial cooperation is also directed.

Central Asia, due to unique and favorable geological conditions, second only to the Middle East and Siberia, is the world's third-largest oil accumulation area, being rich in oil and natural gas. Due to its huge export potential, Central Asia is expected to become an important supply base for the world’s energy markets.

For China, both oil and gas development and transportation mark its essential interests for the country. From Central Asia nations’ policies, one can observe geopolitical and economic interests and needs, which forms a good opportunity for China’s energy sector development and import channels. Moreover, it can lessen China’s dependence on oil from the Middle East and can reduce risks.

3.3.1.1 The Measures China is taking to cooperate with Central Asian Countries

China’s energy cooperation methods in Central Asia include signing of agreements to

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enhance energy cooperation, loan-for-oil strategies, enhancing transportation of oil and gas through establishment of pipelines and using strategies of acquisitions and initiation of joint ventures. From 2006 to 2009 China and Central Asian countries have completed the Sino-Kazakhstan oil pipeline and the Central Asia–China gas pipeline (known also as the Turkmenistan–China gas pipeline). The interaction and cooperation occurring between China and the Central Asian countries after the Events of 9-11 shows that economic diplomacy has become an important method for China to gain a foothold in Central Asia, while expanding its influence in this region.

When the five Central Asian countries first became independent, China focused on economic and trade cooperation to achieve initial breakthroughs in collaboration with the five Central Asian countries. As these countries may possess considerable natural resources but lack capital and technology, this provides foreign countries an opportunity to enhance their investments in Central Asia. In addition to signing energy cooperation agreements with governments in Central Asia, the three major state-owned oil companies, private oil companies, and mining companies used different ways to initiate extensive energy

cooperation with the Central Asian countries, hoping to be first in the competition to secure energy resources for exploitation, this study considers China’s energy cooperation methods as described as follows: ¹³¹

1) Signing of agreements to enhance energy cooperation

In order to strengthen energy cooperation, China and the five Central Asian countries have set up economic and trade committees, and reached final agreements during visits between presidents or prime ministers. During those visits, parties can exchange and sign various trade documents, such as energy cooperation agreements, trade agreements, memoranda of cooperation, letters of intent, and so on. Thereafter provision is made for a legal basis for (future) promotion of energy cooperation. In terms of the level of cooperation,

131 陳章華，「中國與中亞能源合作之探究」，中亞政經情勢與挑戰: 2012年（桃園：健行科技大學歐亞

研究中心，2012 年），頁 87。[Chen, Changhua. Zhongguo Yu Zhongya Nengyuanhezuo Zhi Tanjiu (The research on the energy cooperation between Central Asia and China), Zhongya Zhengjingqingshi Yu Tiaozhan : 2012 Nian (The Political and Economic Situation and Challenge of Central Asia 2012) (Taoyuan: Chien Hsin University of Science and Technology Graduate Institute of Central Asia Studies Publishing, 2012): 87.]

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there are government to government, and company to company agreements made.

In terms of the direction of these agreements and their fields of cooperation, China and the five Central Asian countries have made more comprehensive agreements, including construction of the China-Kazakhstan oil pipeline shipping oil from Kazakhstan’s oil fields to China’s Xinjiang province. China also cooperated with Turkmenistan to build the

China-Central Asia Gas pipeline which transfers natural gas from Turkmenistan, passing through Uzbekistan.

2) Loan-for-Oil strategies

In 2009, China and Kazakhstan signed a 10 billion US dollar Loan-for-Oil Agreement.

Later, the Government of Turkmenistan (GoTX) accepted a reported loan of US$4 billion from the Chinese Development Bank to develop the world’s second largest Galkynysh (former called the South Yoloten) gas field. This strategy has helped China to lock in future supplies while establishing a large foothold in key producing states.

3) Enhancing transportation of oil and gas through establishment of pipelines From 2006 to 2009 China and Central Asian countries have completed

the Sino-Kazakhstan oil pipeline and the Central Asia–China gas pipeline (known also as the Turkmenistan–China gas pipeline). At present, the Sino-Kazakhstan Crude Oil

Pipeline Project Phase II is undergoing construction, and it is expected that in the future China can be free of dependence on Middle Eastern oil, which can provide a stable source of oil for the development of its Northwest Territories.

Moreover, the first of the Central Asia–China Gas Pipeline A/B lines were completed in early November 2009. In October 2012, these two parallel lines became fully operational with a gas transmission capacity of 30 billion cubic meters. Consequently, daily gas transmission capacity was raised to 89 million cubic meters.

Line C of the Central Asia-China Gas Pipeline will run in parallel to the operating Lines A and B to transport gas from Turkmenistan, Uzbekistan, and Kazakhstan. In November 2011 this project has been started and is expected to be completed in January 2014 and will attain its designated output by 2015. After Line C is completed, the deliverability of the pipeline

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will be upgraded to 55 bcm per year (A/B lines: gas transmission capacity of 30 billion cubic meters; C line: 25bcm per year), which will significantly enhance the availability of natural gas for use in China.

4) Using strategies of Acquisitions and Initiation of Joint Ventures

China National Petroleum Corporation (CNPC) in June of 1997 began investment into Central Asia’s energy sector, when, due to geopolitical reasons, CNPC acquired at first a 60.3% stake in AktobeMunaiGas, marking the first chapter of its energy cooperation with Central Asian countries to be opened. CNPC has invested more than $2.6 billion in Kazakhstan since 1997.

CNPC has evaluated the potential of Central Asia’s energy sector as a higher priority than Africa’s. Its goal is ‘to highlight Central Asia, focusing on Kazakhstan, Turkmenistan, and Uzbekistan, in expanding the scale of oil and natural gas cooperation in the region viewing it as their company’s most important oil and gas cooperation zone abroad.’

As can be observed Central Asia’s energy resources have been treated as a major target mentioned in China's "Twelfth Five Year Plan." To secure these objectives the main methods include acquiring shares from oil-producing companies, direct acquisition of foreign oil companies to obtain equity in Central Asia, signing Technical Service Agreements (TSA) with energy-producing countries, initiating joint ventures in energy-producing countries to set up new companies or joint ventures with existing oil and gas companies, and cooperating with the world’s largest oilfield companies to develop or exploit new sites in Central Asia.

From the various needs of the several, poor small countries in Central Asia, the motivation for developing relations with China is largely based on financial expectations.

With the strengthening of China’s economy along with reforms and opening up, backed by powerful market forces, China has gradually developed market incentives to promote peaceful, mutually beneficial relations based on political equality among nations while advocating a multi-polar world and pursuing a sequential pattern of "economic - political - military" global

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China's Central Asia strategy, as part of its global strategy, certainly is consistent in the direction of its development. The interaction and cooperation occurring between China and the Central Asian countries after the events of 9-11, show that economic diplomacy has become an important method for China to gain a foothold in Central Asia, while expanding its influence in this region. ¹³²

3.3.1.2 Disadvantages and Challenges faced by China in pursuing its strategy in Central