Risky Business: The Political Economy of Chinese Investment in Kazakhstan

Abstract

Kazakhstan lacks the democratic institutions that have been shown to protect foreign investors (Jensen, 2008; Li & Resnick, 2003). Nevertheless, as latecomers to globalization, China's resource-seeking state-owned enterprises (SOEs) must go, not only where resources are, but also where they are available. These are often less than ideal investment environments, such as Kazakhstan, where they are confronted by high corruption, weak rule of law, and political risk. Focusing on investments by the China National Petroleum Corporation (CNPC), this study analyzes how Chinese foreign economic policies, such as aid and loans, assist Chinese SOEs in securing protection for their investments. They do so by making key members of the Kazakh government stakeholders in the success of the investments. In addition, the study details how Chinese government strategy has evolved from one of simply buying off key members of the Kazakh government in order to gain approval for investments to one of making institutions in the Kazakh state, such as KazMunaiGas, stakeholders in the long-term success of the investment in order to secure protection for investments in a climate of political uncertainty.