China's high-speed rail diplomacy

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by FT.com

China's high-speed rail diplomacy
By Leslie Hook
When Kazakh President Nursultan Nazarbayev visited Beijing this week, he detoured to Tianjin, the port city near the capital. He was there on a critical mission: inspecting the high-speed railway line that links Beijing and Tianjin.

Thanks to China, Kazakhstan will soon have a high-speed rail link of its own, one that will stretch more than 1,000 kilometres between Astana and Almaty.

It's a symbolic shift, because it wasn't so long ago that it was Russian engineers who toiled away to lay rails across the steppes of Central Asia. Their legacy is still evident in the Kazakh rail system, which conforms to the Russian rail gauge instead of the Chinese gauge.

Kazakhstan is the latest in a string of Chinese trading partners who are clamouring for some high-speed rails: Thailand and Laos have recently signed memorandums of cooperation with China to build high-speed links. Chinese rail companies are bidding for high-speed projects in the US and Australia, and Argentina has also bought high-speed trains from China.

China's high-speed rail companies have the advantage of building high-speed rails much more cheaply than their non-Chinese competitors. Some in the industry say this is because they have "digested" the technology of foreign high-speed rail companies who operate in China.

Few details are known yet about Kazakhstan's high-speed rail project (most crucially who will pay for it), other than that Mr Nazarbayev and Chinese leader Hu Jintao signed a memorandum of cooperation on the rail link Tuesday in Beijing. Kazakh officials in Beijing said the line could be completed by 2015, cutting down the overnight journey to a mere four-hour ride between the country's two largest cities. Kazakhstan's harsh winters make trains a particularly trustworthy mode of transport, as winter storms often take airports out of commission for hours (sometimes days) at a time.

China's ability to build high-speed rails overseas has yet to be fully tested—Chinese rail companies have not yet actually constructed any high-speed rails outside of China—but it isn't hard to see the appeal.

Trade with countries like Laos, Thailand and Kazakhstan is vital for China's supplies of raw materials including rubber, oil and uranium. Beijing is keen to keep good terms with these neighbors. And who can say no to a little high-speed diplomacy?


Kazakhstan embraces Chinese investment
By Leslie Hook,Isabel Gorst in Beijing, in Moscow


Kazakhstan announced billions of dollars in deals with China on Tuesday, emphasising central Asia's gradual shift from Moscow towards Beijing.

Meeting in Beijing on Tuesday, Kazakhstan's president, Nursultan Nazarbayev, and Chinese leader Hu Jintao signed a series of agreements including high-speed rail, uranium supplies and a $5bn energy infrastructure loan.

China's investments in Kazakhstan have for years centred upon oil production – but Tuesday's deals show Beijing's reach now extends beyond the energy sector.

Among the deals was a $1.7bn loan by China to Kazakhstan's national welfare fund; a supply agreement for about 55,000 tonnes of Kazakh uranium to meet China's increasing nuclear needs; and a memorandum of understanding for China's Ministry of Railways to help construct an Astana-Almaty high-speed rail link.

Agreements were also reached about water quality controls for rivers that flow from western China into Kazakhstan, and on co- operation in the fertiliser sector. China sees this as important since it looks to its neighbour for a new source of food.

"China has become the real great power in the region," says Shamil Midkhatovich Yenikeyeff, research fellow at the Oxford Institute for Energy Studies. "China represents the future [while] Russia represents the past ."‰."‰."‰ China has an upper hand over Russia in terms of its cash power and in terms of effective implementation of large-scale projects."

Kazakhstan has kept close ties with Russia since dissolution of the Soviet Union. Russian companies have many oil development contracts and share access to exploration acreage in the Caspian Sea. Russia's pipelines are the chief conduit for Kazakh oil to world markets even as the country tries to diversify export routes.

China and Russia are neck-and-neck in terms of bilateral trade with Kaz-akhstan, Kazakh customs data suggest.

China began acquiring oil assets in Kazakhstan in the late 1990s, securing a fresh source of energy on its doorstep to fuel growth and to reduce dependence on Middle East supplies. Chinese companies now have equity ownership of about a quarter of oil produced in the country, says research by Visor Capital.

The central Asian nation is home to rich reserves of uranium, copper, gold and nickel – materials China needs for its economic boom. The uranium agreement signed on Tuesday will see Kazakhstan supply China with some 55,000 tonnes of the radioactive material, which is worth more than $8bn at current market prices. Terms of the deal were not disclosed.

China helped finance and build a pipeline to carry oil 1,000km from central Kazakhstan to its north-western frontier, opened in 2007. The pipeline will span Kazakhstan and provide China with access to oil resources in the Caspian Sea.

The financial crisis gave China an opportunity to strengthen its grip on Kazakh oil and to expand into the broader economy.

In 2009, China lent KazMunaigas, Kazakhstan's state oil company, $5bn against future oil. Separately, China lent the Development Bank of Kazakhstan $5bn for transport, telecommunications and agriculture projects.

"What Kazakhstan doesn't want is to become a raw material appendage to China," says Michael Denison, head of research for consultancy Control Risks.
 

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