London School of Economics and Political Science
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London School of Economics and Political Science China and Kazakhstan: Economic Hierarchy, Dependency and Political Power? Simone Bohnenberger-Rich A thesis submitted to the Department of International Relations of the London School of Economics for the degree of Doctor of Philosophy, London, March 2015 1 Declaration I certify that the thesis I have presented for examination for the MPhil/PhD degree of the London School of Economics and Political Science is solely my own work other than where I have clearly indicated that it is the work of others (in which case the extent of any work carried out jointly by me and any other person is clearly identified in it). The copyright of this thesis rests with the author. Quotation from it is permitted, provided that full acknowledgement is made. This thesis may not be reproduced without my prior written consent. I warrant that this authorisation does not, to the best of my belief, infringe the rights of any third party. I declare that my thesis consists of 99,969 words, excluding Bibliography. Statement of use of third party for editorial help I can confirm that my thesis was copy edited for conventions of language, spelling and grammar by Transformat. 2 For Baerbel Rich 3 Abstract The thesis uses a neoclassical realist framework to investigate the link between economic influence and political power in China’s foreign policy, taking Kazakhstan as a case study. Over the last decades, China developed formidable relative economic capabilities that it increasingly projects externally. An in-depth look at Chinese trade, finance and investment elucidates the drivers of China’s economic influence in Kazakhstan. The analysis shows that Beijing created strong economic dependencies, which in turn introduced a steep hierarchy in the bilateral relationship that leaves Astana in a subordinate and Beijing in a dominant position. This dependency is driven by the legitimacy and revenue needs of the Kazakhstani elite, on the one hand, and China’s relative economic capabilities, guided by Beijing’s “Go Global” and “Go West” initiatives, on the other. The thesis discusses the complex array of economic institutions that project Chinese economic power into Kazakhstan and their relationship with Beijing to determine whether Kazakhstan’s economic dependence is the outcome of a deliberate policy directed by Beijing. After establishing the extent of the hierarchy and dependency of the relationship, the thesis addresses China’s ability to translate the dependency into meeting its foreign policy interests. Beijing does indeed successfully leverage this dependency to meet its political objectives, most notably in gaining access to Kazakhstani resources. Furthermore, an in-depth cases study of the Sino-Kazakhstani transboundary water dispute illustrates that Beijing can maximise its foreign policy objective of maintaining absolute sovereignty over its rivers on the back Kazakhstan’s economic dependence. However, this outcome is driven largely by Kazakhstan itself, particularly by its elite. This turns China into a hydro-hegemon, undermining its foreign policy principles of “win-win” and “mutually beneficial” cooperation. 4 5 Acknowledgements The research and writing of this thesis would not have been possible without the support of many different people. First and foremost I would like to thank my supervisor Professor Christopher Hughes for his invaluable guidance, patience and support throughout this process as well as his encouragement to think freely. Additionally I thank my panellists Prof. Barry Buzan, Dr. Roy Allison and Prof. Christopher Coker, for their constructive criticism. A particular thank you for the administrative support of Hilary Parker and Martina Langer who keep the Department organised and who, I am certain, had their fair share of work with me. I am indebted to the department to provide me with the financial support for this thesis. The thesis would have been impossible without the indispensable input of all the experts, diplomats, analysts and practitioners who took time out of their busy schedules to welcome my questions and share their expertise in and outside of Kazakhstan. I am especially grateful to Russell Frost, Tim Hannan and Kurt Mørck Jensen and the many more who prefer to stay anonymous for the insightful and thought-provoking conversations. During my field research I had the privilege to meet and befriend incredibly bright and talented Kazakhstanis who have welcomed me to their country and provided me with the support to maximise my research outcome. These individuals also instilled a sense of confidence that a brighter political and economic future for Kazakhstan is a realistic possibility. Lastly my gratitude goes to the supportive environment which saw me throughout this journey and was indispensable for me to see this project through by providing commentary, criticism and counsel. Thanks to: Annika Bolten-Drutschmann, Helen Donovan, Klaus Guimarães Dalgaard, Jo Hennessey, Dorota Lecznarowicz, Elise Meckroll, Dimitrios Stroikos, Chienyu Shih, Amena Yassine and most of all to Barbara Richter. 6 Table of Contents Chapter 1 Introduction ............................................................................... 14 1.1 The Economic Variable in China’s Foreign Policy ...................... 14 1.1 Thesis Objectives and Methodology .......................................... 19 Chapter 2 Theory ....................................................................................... 27 2.1 The Link between Economic Influence and Political Power ...... 27 2.2 Hierarchy, Hegemony and Empire in IR ..................................... 31 2.3 Operationalising Economic Dependence ................................... 34 2.4 Overarching Theoretical Framework: Neoclassical Realism ...... 56 Chapter 3 Kazakhstan’s Political System ..................................................... 59 3.1 Power Consolidation .................................................................. 61 3.2 Emergence of the Elite Network ................................................ 66 3.3 Concentration of State Assets and Economic Power ................ 79 3.4 The Elite’s needs drive China’s economic influence .................. 85 3.5 Chapter Conclusion ..................................................................118 Chapter 4 The Power of Finance-China as Key Creditor ............................. 120 4.1 China’s Creditor Status in Kazakhstan .....................................122 4.2 Kazakhstan’s Banking Crisis .....................................................122 4.3 The Impact of Chinese Finance ................................................132 4.4 Chinese Conditionality .............................................................144 4.5 The Future of Chinese Loans....................................................152 4.6 Chapter Conclusion: Financial Dependence ............................162 Chapter 5 Trade, Investment and Dependency ......................................... 166 5.1 Sino-Kazakhstani Trade ............................................................168 5.2 Chinese FDI ..............................................................................193 5.3 Economic Dependence ............................................................197 Chapter 6 The Background of the Sino-Kazakhstani Water Dispute as a Case Study ............................................................................... 224 6.1 Context of the Sino-Kazakh Water Dispute .............................225 7 6.2 Transboundary Water Regimes ...............................................227 6.3 China ........................................................................................230 6.4 Kazakhstan ...............................................................................237 6.5 The Sino-Kazakh Transboundary Water Nexus .......................244 6.6 China’s Water Diversion ..........................................................247 6.7 The Dispute Dynamics .............................................................253 6.8 Celebrated Negotiation Outcomes ..........................................264 Chapter 7 Dispute Analysis ....................................................................... 269 7.1 Theoretical Framework ............................................................270 7.2 China’s Bargaining Strategy .....................................................271 7.3 Analysis of the Sino-Kazakh Water Dispute .............................280 7.4 Dispute Outcome .....................................................................316 7.5 Deliberate dispute outcomes? .................................................320 7.6 The Elite also Facilitates China’s Objectives ............................323 Chapter 8 Conclusions .............................................................................. 330 8.1 Economic Dependency ............................................................330 8.2 Implications for Chinese Foreign Policy ...................................337 8.3 Implications for IR Theory ........................................................343 8.4 Outlook ....................................................................................346 Bibliography ................................................................................................ 350 8 Table of Tables Table 1 Kazakhstan’s External Debt to GDP Ratio ................................................... 124 Table 2 External Debt of Banks ...............................................................................