Strike Unsettles China's Plans/ENG

Kazakhstan clash sparks Central Asian energy concerns.

Labor troubles in Kazakhstan following the deaths of 16 protestors last month could challenge China's plans to rely more on Central Asian oil and gas.

Tensions have flared since hundreds of oil workers in western Kazakhstan were fired after striking for higher wages last May at the start of a seven-month standoff with local authorities.

The workers in the Mangistau region walked off their jobs at the state-owned UzenMunaiGaz oil company and nearby Karazhanbasmunai, a joint venture with China's CITIC Oil & Gas Holdings, formed from the acquisition of Canada's Nations Energy in 2006.

Rather than negotiating the grievances, authorities declared the strike illegal and launched a series of trials that spawned further protests and violence.

In August, a regional court sentenced labor lawyer Natalya Sokolova to six years in prison for "igniting social unrest," extending a term for strike activities that was initially set for eight days.

The disputes reached a climax on Dec. 16 when police opened fire on crowds in the oil town of Zhanaozen, killing 16 on the 20th anniversary Kazakhstan's independence.

The resulting furor and threat to stability forced President Nursultan Nazarbayev to take charge of the situation.

On Dec. 22, he sacked his son-in-law Timur Kulibayev as head of the state's sovereign wealth fund and replaced Mangistau's governor, as well as top managers of the state oil company.

"Kazakhstani public servants should be working for the benefit of our people," Nazarbayev said, according to Interfax.

He later told a meeting in the port city of Aktau that the "workers' demands were in general justified," Reuters reported. "The employer should not have forgotten that these are our citizens. They have not fallen from the moon."

The government's about-face and orders to rehire hundreds of strikers to new jobs may ease the crisis, but it may come too late to avoid shaking China's confidence in the country's stability.

"They will certainly be concerned," said Alexandros Petersen, a strategic analyst in Washington and author of "The World Island: Eurasian Geopolitics and the Fate of the West."

"Certainly, more than any other consumer of oil globally or Kazakh resources in particular, China should be most concerned because it's put a lot of eggs into that basket," Petersen told RFA.

Import needs
China imports some 230,000 barrels of oil per day from Kazakhstan, filling 4.5 percent of its import needs, according to customs data. Nearly all the oil flows through Xinjiang from China's first cross-border pipeline, which started pumping in late 2005.

China's ventures in Kazakhstan account for 22.5 percent of the country's production of 1.6 million barrels per day, Reuters reported citing Kazakh official statistics.

Kazakhstan is also the longest link in China's 2,000- kilometer (1,242-mile) Central Asian Gas Pipeline from Turkmenistan, launched in 2009. China agreed to help build a branch to western Kazakhstan in 2010.

In November, Turkmenistan pledged to boost its gas supplies through Kazakhstan to 65 billion cubic meters per year, equal to about half of China's current consumption.

Petersen said China is still likely to feel "fairly confident" about its regional strategy because it has built relations with all the Central Asian countries, not just Kazakhstan.

But the unrest is a major cause for concern, both for investment and the risk that clashes could spread.

"This specter of political unrest—civil unrest, labor unrest—is something that the Chinese are far more concerned about in the region than the geopolitical machinations with Russia or the West that are often covered," said Petersen.

"They're far more concerned about whether there is discontent among people on the ground," he said.

In recent contacts, Chinese officials have voiced concern that the trouble could escalate into the sort of violence that erupted in the Uzbek city of Andijan in 2005, said Petersen.

While labor disputes and wage demands have also become common in China, the potential for spurring ethnic conflicts in Central Asia is particularly troubling because of separatism in Xinjiang and resentment of Chinese investment farther west.

Sensitive
Kazakhstan has been sensitive about China's role in its oil industry due to fears of encroachment.

In May, Oil and Gas Minister Sauar Mynbayev defended the government's policy on Chinese investment in the oil sector, predicting its share of production would drop to 8.9 percent by 2020. Days later, demonstrators marched in the southern city of Almaty, demanding an end to China's expansion in Kazakhstan.

At the rally to "return the nation's wealth to the people of Kazakhstan," opposition parties played upon fears of Chinese financing and control over resources.

"We see the potential for a situation whereby one day, when it comes to repaying nearly U.S.$20 billion to China, we will have no money and no oil, because the oil is no longer ours," said Vladimir Kozlov, leader of the unregistered Alga! (Onward) party, according to Reuters.

In recent years, the government has repeatedly been called upon to deny that it has leased land to China in secret deals for farming or other activities.

Tensions have also boiled over periodically about the presence of Chinese oil workers in western Kazakhstan and local hiring since China's first wave of investment in 1997.

In 1999, China National Petroleum Corp. laid off at least 1,200 local workers at its Aktobemunaigaz oil venture and delayed wages to stem losses during the Asian currency crisis, a company official told Kazakhstan's weekly Panorama at the time.

Since 2005, China's investment in Kazakhstan has surged with a series of oilfield acquisitions and pipeline expansion plans. As of 2010, China had invested $13.5 billion in the country, according to the Kazakhstan Chamber of Commerce in the USA.

China has been Kazakhstan's second-largest trading partner since 2009 and its biggest export market since 2010, when bilateral trade reached $20.4 billion, the official English- language China Daily reported.