April 17, 2015

China and Russia: A Controversial Partnership

Mihail Metzel/RIA Novosti
11/11/2014 November 11, 2014. Russian President Vladimir Putin, left, and Chinese President Xi Jinping during a joint photo session at the International Convention Center in Yanqi Lake, Beijing, before the APEC summit.
11/11/2014 November 11, 2014. Russian President Vladimir Putin, left, and Chinese President Xi Jinping during a joint photo session at the International Convention Center in Yanqi Lake, Beijing, before the APEC summit.

Autocratic leaders have similar interests.

According to a popular view, the Russian–Ukrainian war has been won by China. This is believed for several reasons. Russia’s aggression has brought the attention and resources of the United States back to Europe, thereby reducing the ability of Barack Obama’s administration to commit to the announced pivot towards Asia. The latter is interpreted by Beijing as Washington trying to curb China’s growing influence. Sanctions imposed by the West have functioned as a catalyst for China’s and Russia’s mutual relationships, increasing Beijing’s access to Russia’s oil and gas sectors and domestic market. The partnership certainly has a significant influence on both countries, as well as the international order as a whole. It is therefore reasonable to ask under what conditions it came about and what it could look like in the longer term.
The 20th century was characterised by the Soviet Union trying to communicate with Beijing from the position of an older brother. But China’s economic development in the last three decades has fundamentally changed matters, and Russia’s foreign policy actions since Vladimir Putin’s ascent to power show that it is adapting to the situation. In 2001, a strategic friendship and cooperation treaty was signed.
A further treaty in 2004 finally resolved the sensitive border issues that had led to a military clash between the countries in 1969. This marked the end of a long-lasting territorial dispute that had been complicating relations. Mutual understanding and cooperation on an international scale increased, for example in the United Nations Security Council and the Shanghai Cooperation Organisation. At the same time, Moscow was cautious and distrustful in economic relations. Chinese business activities were restricted in the Russian Far East and Siberia. Bureaucratic barriers hindered the creation of joint undertakings in certain fields because it was feared that the Chinese could invade the Russian market through dumping and push local producers aside. China’s banks, unlike Western financial institutions, were not allowed to do business in the Russian retail market. At this time, Moscow was seriously concerned about China’s real intentions in the Far East, especially taking into account the huge difference in the demographic potential of the regions near the borders.1 At the same time, Moscow was improving relations with other Asian countries in order to counterbalance its large neighbour and to prove that it was a valuable player in the region. It can be said that, before the war in Ukraine, the Kremlin was developing mutual relations with China first and foremost in a political and economic framework suited to the Russians.
This approach changed in May 2014 with Putin’s visit to Shanghai. Talks about a 30-year gas treaty between the two countries had been extremely slow. But now, allegedly just before the Russian president left town, a US$ 400 billion agreement was reached. By that time, the European Union and the US had imposed sanctions on Russia over the annexation of Crimea, as a result of which senior officials and businessmen close to Putin were blacklisted and their assets frozen. Putin desperately needed China’s political support to show that Russia was not isolated. There has been plenty of speculation about the price at which the Russians agreed to sell gas and to what extent the transaction is economically profitable to Gazprom. While opinion is divided, it seems that most people think that, in the current political situation, the Russians need to sell gas more than the Chinese need to buy it, and this must have influenced the price. In addition to the gas treaty, several joint large-scale infrastructure and external trade projects were agreed upon in Shanghai. In addition, some 40 treaties on cooperation in various fields were signed when China’s Prime Minister visited Moscow in October.
Increasingly positive relations are directly influenced by the sanctions imposed on Russia. On 1 August 2014, economic sanctions entered into force, restricting the access of Russia’s large banks and government-owned enterprises to Western capital markets and the sale of sensitive technology, including in the energy sector. Together with the low price of oil, the sanctions have had a strong effect and Russia, facing financial problems, started looking for cheap debt finance in Asia. In a situation where Japan has joined in the sanctions and South Korea has adopted a wait-and-see attitude, the main emphasis fell on Beijing, from whom Moscow expected a helping hand. It is noteworthy that Putin’s close friend Gennady Timchenko, a billionaire, was appointed chairman of the Russian–Chinese Business Council. This is a clear signal to Russia’s business elite about the importance to Russia of economic relations with Beijing.
But the realities of the world economy and the wishes of national leaders do not always coincide. So far, China has not replaced the debt finance of the European and American banks either in terms of capacity or conditions, not to mention the possibility of listing securities on the London or New York stock exchanges. China cannot offer the developed technologies that Russia requires for developing oil and gas deposits in the harsh conditions of the Arctic and eastern Siberia. The practical cooperation has not gone exactly as the Kremlin expected. According to the Russians, Chinese banks have shown inflexibility in credit negotiations, sensibly evaluating business risks and the investment climate in Russia, especially when dealing with a long repayment period and large projects. The Chinese usually tie loans to conditions that require the use of their technology in joint projects, or establishing factories on Russian territory. The about-turn to China is not going smoothly—Russian enterprises lack expertise and language skills, and the different cultural space is also causing problems. The risks are huge because, although building pipelines in China provides an alternative market in the long run, it simultaneously ties the Russians to Beijing in the event that European supplies decrease. Russia might end up in a situation where the larger buyer dictates the conditions. In a 2011 dispute over the interpretation of a delivery contract, where the Russian oil companies Trasneft and Rosneft were facing China’s state energy enterprise CNPC, the Russians had to lower their price.
Dangers stemming from demographic inequality have not disappeared. There are about 6.3 million people living in the sparsely populated Russian Far East region, 75% of whom live in cities. On the other side of the border, the population of three Chinese provinces—Heilongjiang, Liaoning and Jilin—is almost 110 million. The Russian Federal Migration Service (FMS) warns that, in the next couple of decades, the Chinese will become the largest ethnic group in the Russian Far East. Illegal immigration from China is a serious issue. The FMS says that 1.5 million Chinese entered the Far East region between January 2013 and June 2014.2 The probability is therefore increasing that, in the event of problems, Beijing will forcefully protect its businesses and citizens.
China has taken a very pragmatic standpoint concerning the lack of Kremlin’s choices. Economic interests have not been played down. As a result of Western businesses withdrawing and freezing projects, a vacuum has appeared in the Russian market that the Chinese are eager to fill. The framework of the mutual relationships has tilted in Beijing’s favour. Even though the official media of both countries emphasise the positive aspects of cooperation, the Russians are far from indifferent about what is going on. However, Russian experts tend to evaluate Beijing–Moscow relations first and foremost through the prism of Russia’s relations with the West, according to which the latter is a real threat that cannot be compared to the hypothetical danger of China asserting itself.3 It is believed that, in the event of conflicting interests, the economically weaker Russia will be able to compensate for this shortcoming through its greater diplomatic and political skills.4 People on the street are considerably more pessimistic. A Russian internet commentator observed some time ago that “China is sitting at the Yangtze River right now and waiting for Russia’s corpse to float by. And it will wait until it eventually does.”
Although it might be presumed that the Russians were hoping for greater compliance from the Chinese in the economic sphere, at the same time, the common interests of Beijing and Moscow should not be underestimated. This applies to both domestic and foreign policy. Both are autocracies, although the question how to guarantee their legitimacy is never off the table for the leaders. In a broad sense, both the Kremlin and the communist leadership in Beijing have bet on the same cards—the growth of economic well-being, enhanced status for the country and a growing sense of national pride. Both Vladimir Putin and Xi Jinping consolidate their power and busy themselves with creating an image. The nuances take cultural context into account. While Putin calms tigers and speeds around on a motorcycle, for President Xi family values take priority. They partially share the same toolbox. Both agendas include fighting corruption and control over social media is high on their lists. Coloured revolutions are completely out. Historically, the Second World War and communist ideology form a strong common ground. The latter is still officially in force in China and president Putin increasingly values the Soviet legacy. From the perspective of domestic policies, both countries insist that the West has never moved on from its imperialist attitude during the Cold War, which is demonstrated by its support for Maidan and pro-democracy protests in Hong Kong.5 This notion is fed by the perception, deeply rooted in Russian political culture, of Russia being a fortress surrounded by enemies, where the main threat comes not from the East, but from the West. At the moment, this is the favourite narrative of Russian national propaganda. Chinese foreign-policy experts point to the conviction dominant among both the elite and the population at large that the US will not give up its global hegemony willingly and therefore will not allow China to become the world power that it deserves to be.6 Western liberal and democratic values are heavily criticised in both countries. A publication of the Communist Party of China called these values in a recent editorial a “ticket to hell”.7
Such rhetoric points to the need to oppose Western influence (mainly from the US) and at the same time create an international rule on several levels of power. The establishment of parallel international institutions and the creation of rules has in fact already begun. A joint international bank of the BRICS countries has already been established as an alternative to the IMF and the World Bank. Putin’s vision of an international regime, which he set out in a traditional telemarathon in April last year, definitely fits this picture: the main factor shaping international relations should be military power. International order and stability are determined by agreements of world powers with military strength. Militarily weak (small) countries should adopt rules of behaviour that do not offend the interests of great powers and do not give them any reason to use force a priori.
Despite common interests in the global arena, Beijing and Moscow are competing on a regional level. China’s Silk Road Project is competing with the Eurasian Economic Union initiated by Putin. Investments amounting to billions of dollars in the gas pipeline running through Central Asia have made China’s state energy enterprise CNPC into a rival for Gazprom because the Russians have traditionally bought a large amount of Central Asian gas. Russia is still trying to treat relations with China as one element of wider Asian politics, as illustrated by Putin’s visit to India at the end of last year and the signing of a strategic agreement with Pakistan. On the other hand, experts claim that Russia has bitten off more than it can chew. Russia’s economy will simply not sustain a permanent presence in Asia.8
Nevertheless, the partnership between China and Russia seems to work in a general sense—at least as long as Russia is governed by Vladimir Putin. Ukraine shows that Putin will not recoil even when faced with war if he needs to protect the interests of a small group of people who hold power in Russia today. The Russian president had a deeply personal reason for attacking Ukraine. Many Russians look upon Ukraine as a model that could easily be transferred to Russia. In other words, if Ukraine is capable of thoroughly reforming itself, Russia should be able to do the same. To ensure the failure of Ukraine, Putin is willing to endure relations with China in which Moscow holds the weaker position. The fact that Putin is willing to risk Russia’s long-term interests shows the nature of the war in Ukraine. This is not Russia’s war, it is Putin’s war. And what happens to Russia in twenty or thirty years, or after Putin’s time, is not really important to the Kremlin.
This article expresses the author’s personal opinions.
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1 Aleksandr Gabujev, “Bespokoinoe partnerstvo”, Rossija v globalnoi politike, No. 5, September–October 2014.
2 Shannon Tiezzi, “China Eyes Land Giveaway Program in Russia’s Far East”, 28 January 2015. thediplomat.com/2015/01/china-eyes-land-giveaway-p… 3 Vladimir Portjakov, “Vozvõshenie Kitaja: shto dalshe?Rossija v globalnoi politike, No. 3, May–June 2014.
4 Fjodor Lukjanov, “It’s not just about gas: Why China needs Russia”, 29 May 2014. www.rusemb.org.uk/opinion/41
5 Gilbert Rozman, “Asia for the Asians”, Foreign Affairs, 29 October 2014.
6 Minxin Pei, “How China and America See Each Other”, Foreign Affairs, March–April 2014.
7 “China state media seen stepping-up anti-Western rhetoric”, Washington Post, 3 March 2015. www.washingtonpost.com/world/europe/china-state-me… 8 David Tweed, “Why Putin Fears China”, Bloomberg, 16 February 2015. www.bloomberg.com/news/articles/2015-02-15/putin-f…

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