Contours of ongoing Russia-China Ties – Dr. Abdul Ruff Colachal

Contours of ongoing Russia-China Ties
– BY Dr. Abdul Ruff Colachal

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Two UNSC- veto members and two of the largest economies and military giants, Russia and China have a multifaceted relationship with an admixture of open cooperation and silent confrontation. Both are moving closer to US-led Western orbits and fight and kill Muslims indoors, have business interests in Afghanistan and hence they don’t oppose NATO terrorism there, but support them in all possible ways. Ongoing US-led NATO terror wars have strengthened the ties between the former communist states. China and Russia have also lent support directly to each other on issues that have riled the West, such as Beijing’s tough position on Tibet and its restive Xinjiang region and Moscow’s involvement in its proxy states in the Caucasus. Traditionally both countries emphasized sovereignty in their joint combat against religious extremism, secessionism and American unilateralism.

Positive signals are being constantly sent out from both Beijing and Moscow that these two former ideological allies turned arch foes during the Cold war – but again mended their ways since the onset of Perestroika (Reforms) by Nobel Laureate M. Gorbachev in mid-1980s – are becoming strategic partners in more than one way. During last two decades regular visits from both sides have stabilized their trade relations and also somehow cemented their border claims. As part of strengthening their ties, an official meeting between the two countries’ prime ministers is held annually under the auspices of Russian-Chinese strategic cooperation and as part of efforts to form a permanent bilateral commission. Issues involving trade and economic cooperation are usually the main focus of these talks.

Russia’s strongman Vladimir Putin’s visit coincides with the 60th anniversary of diplomatic relations between China and Russia. There was positive air in Beijing as Vladimir Putin was greeted with an official welcoming ceremony at the Great Hall of the People on 12 October. The background is the ever growing bilateral trade. China and Russia have already signed trade agreements worth $3.5bn (£2.2bn). The agreements came during the second day of a visit to Beijing by Russian Prime Minister Vladimir Putin. About 40 contracts were signed by Russian and Chinese businessmen and officials, Russian deputy Prime Minister Alexander Zhukov said. The head of Russia’s Gazprom, Alexei Miller, said a preliminary deal had also been struck on supplying 70bn cubic metres a year of gas to China. The deals included two $500m loans from Chinese banks to Russian financial institutions. One was from the China Development Bank to its Russian counterpart Vnesheconombank, while the other was from the Agricultural Bank of China to Russia’s state-run VTB bank. He said other deals included investments by Chinese firms in Russian construction facilities, but gave no details.

One deal which could further Russian-Chinese energy cooperation was struck in April when, in return for 300 million tons of Russian oil over 20 years, China agreed to lend Russian oil pipeline monopoly Transneft $10 billion and state-run oil company Rosneft $15 billion. China’s investment in Transneft’s East Siberia-Pacific Ocean pipeline will help to aid its slated 2010 completion and could lead to 15 million tons of crude oil being pumped into the insatiable Chinese industry sector.

Russia and China have realigned their trade and diplomatic ties, and Vladimir Putin’s visit to Beijing shows that, despite lingering doubts and distrust, the two sides have more to gain than lose from mutual cooperation. Trade, energy and security deals worth an estimated 3.5 billion euros ($5.5 billion) have been signed during Russian Prime Minister Vladimir Putin’s three-day visit to China. The Agricultural Bank of China has also agreed to lend $500 million to Russia’s VTB bank. A memorandum of understanding has also been signed on developing a high-speed rail link on Russian territory. Progress was also announced on a natural gas pipeline project as well as nuclear energyThe two sides had also signed an agreement to set up a presidential hotline between Moscow and Beijing. More than 20 agreements have been negotiated, including one committing both countries to notify the other when ballistic missiles are launched from their territories.

Russian Prime Minister Vladimir Putin during his recent visit to Beijing has concluding many agreements on Sino-Russian cooperation in development of energy resources. The Shanghai Daily reported that Putin signed a total of nearly three dozen contracts in energy, mining, transportation and infrastructure, worth more than $5.5 billion. The results of this visit are extremely important because it is precisely in the area of trade and economic cooperation that the greatest number of problems exists. The global economic crisis has further aggravated old problems in bilateral trade and economic relations, leading to the current situation. As a result, it is now clear that the goal set by the leaders of both countries to increase the trade volume to $60 billion to $80 billion by 2010 will not be met. The same is true regarding investment targets. It is possible that Russia will drop from being China’s eighth-largest trading partner to the 15th or 16th largest, falling behind countries such as Malaysia, Singapore, India, the Netherlands, and possibly Britain, Brazil, Thailand and France. That would further decrease the mutual importance of Russia and China as trading partners.

Cooperation

Veto membership in the notorious UNSC has kept the trade ambitions of both on the rise. Recently Russia’s most powerful politician and former president, Prime Minister Vladimir Putin visited China and held talks with his Chinese counterpart, Wen Jiabao, in Beijing on October 13. Putin and Wen signed more than 20 agreements on projects involving bilateral cooperation. A joint communiqué was signed announcing the start of cooperation on ballistic missiles and missile delivery vehicles, as well as the establishment of cultural centers. There also were agreements on improving customs controls, developing high-speed train lines in Russia and cooperation between Russian and Chinese special economic zones.

Russia is keen to bolster its economy, which President Dmitry Medvedev has said will decline by 7.5% in 2009 – far worse than earlier predicted. Trade between Russia and China has risen from less than $10bn to more than $50bn annually over the past six years. Moscow is hoping to sign deals worth $5.5bn (£3.5bn) with China as Prime Minister Vladimir Putin visits Beijing. About 30 contracts in infrastructure, energy, mining, transportation and telecoms have been lined up. The deals may lead to Russia selling more oil and gas to China – the world’s second-biggest energy user. However, Moscow is also keen to boost exports of machinery, especially aviation equipment and nuclear power plants – though analysts say that China’s appetite for Russian goods other than energy and raw materials is limited. Earlier this year, Moscow signed a $25bn agreement to help fund a pipeline to supply oil from Siberia to China. In exchange, China was guaranteed a 20-year supply of crude oil.

Russia aims at developing stronger economic cooperation with the Chinese to reduce its reliance on the European consumer market. It has approved major new pipeline projects to China and is seeking to turn its vast territory in a land bridge between the East and the West. The Arctic Ocean will be another trump with which Moscow will seek to step up its economic leverage.

Russia is keen to sell more oil and gas to China – the world’s second-biggest energy user. Putin’s visit follows up on a $25 billion agreement that Moscow signed earlier this year to help underwrite a pipeline to supply China with oil from its untapped Siberian reserves. Under terms of the agreement China was guaranteed a 20-year supply of crude oil; the pipeline agreement is just part of the $100 billion in China-Russia energy-related contracts agreed to in 2009 alone. The Sino-Russian pipeline is due to begin supplying China 1.5 million tons of oil annually beginning in 2011. Chinese Vice Premier Wang Qishan observed that Sino-Russian relations have “entered a new stage of long-term, strategic cooperation on energy.”

As of now, Russia’s most commonly exported products to China are energy and weapons, whereas the most commonly imported products include everything from electronics to clothes. In addition, some state corporations have benefited from Chinese loans. For example, China’s $6 billion loan helped Rosneft purchase Yuganskneftegaz in a December 2004 auction. Notably, the chairman of Rosneft is Igor Sechin, who is a deputy prime minister and member of Prime Minister Vladimir Putin’s inner circle. As the key negotiator, Sechin is now applying the model of a recently signed oil deal with China to other energy areas including electricity, natural gas and atomic energy.
Trade between Russia and China has risen from less than $10bn to more than $50bn annually over the past six years. The heart of the relationship is Beijing’s thirst for Russian energy – oil and gas make up more than half of Russian exports to China. Earlier this year, Moscow signed a $25bn agreement to help fund a pipeline to supply oil from Siberia to China. In exchange, China was guaranteed a 20-year supply of crude oil. However, Moscow is also keen to boost exports of machinery, especially aviation equipment and nuclear power plants – though analysts say that China’s appetite for Russian goods other than energy and raw materials is limited.
In the area of economic relations, the pro-China position is often favored by energy producers and military enterprises in search of high-ticket defense contracts in Asia. Kremlin strategists believe that the country would be better off redirecting its oil and gas supplies toward Eurasian countries such as China and India because such a measure would assist the country in developing energy-intensive goods and transforming its current status as a raw materials appendage of Europe.

China is also looking to benefit from Russia’s dissatisfaction with Europe as an energy consumer and partner. While still focused on the West, Moscow is keen to find alternative customers for its oil and gas and China has made it clear that it is ready to strike deals over Russia’s huge mineral resources. Russia is highly interested in ‘security of demand. Russia is thus very keen to diversify its demand structure and China would be an ideal partner to do so – guaranteeing a high level of demand in the long-run. Similarly, a better cooperation with Russia as a substitution for increasing trade relationships with the Muslim nations, the so-called “rogue states”, may benefit China’s political image in the West.

The two nations are building the strongest ties in the areas of trade and energy. China is Russia’s second largest trade partner after the European Union, and despite bilateral trade shrinking by just over 36 percent to $24 billion in the first eight months of this year as a consequence of the global financial crisis, the two countries expect bilateral trade to increase to $60-80 billion by 2010.

The driving force in these trade relations, however, is China. The Chinese economy has left its Russian equivalent standing in recent years, with China gross domestic product growing in contrast to Russia’s shrinkage during the economic crisis. China represents less than 10 percent of Russia’s trade, and the Russian trade deficit is growing.
China is the world’s second largest and fastest growing energy consumer, and will be the world’s largest energy consumer as of 2010. Total primary energy demand has almost tripled between 1980 and 2005 and is expected to more than double again between 2005 and 2030. In view of the existing anti-Western ties, China also aims at being a major consumer of Russian gas if export monopoly Gazprom can overcome its pricing disagreements with the Chinese and make good on a 2006 agreement to build two major pipelines into China.

Confrontation
Maybe under the influence of US-led Western “democracies”, Russians over years have developed double-speak capability: on killing of Chechens and other Muslims, they shut their eyes, but when it comes to some pockets of activists, they make a big fuss. Both powers yearn for international esteem and status, but China is way ahead. This has led to growing distrust in Central Asia, where China has gained influence at Russia’s expense. Also in Northeast Asia, Russia’s influence is really squeezed under China’s demographic and commercial weight.

Since Russia’s unilateral intervention in Georgia last year, this normative common ground has faded. China for example refuses to recognize the independence of South Ossetia and Abkhazia as Russia would like. Behind closed doors the Chinese also criticize Russian plans to build new military bases in Central Asia.

Moscow’s main frustration is that China, encouraged by USA and Europe, is starting to overshadow Russia as a great power. Russia and China have a history of rivalry and distrust stemming from disputes in the 1960s over differences in communist doctrine and skirmishes along their shared 4,300-kilometer (2,672-mile) border. While most of the border issues have been resolved, Moscow is still wary of Beijing’s growing economic and security influence on its eastern flank.

In the current system, a significant percentage of all goods crossing the border are never declared, with the result being that both official figures for trade volume and budgetary income from customs fees are correspondingly lower. Also, this promotes corruption even at the borders, strengthening systemic corruption. All illegal activities are being carried out by organized criminal groups among the business communities in both countries, as well as by representatives of Russian government agencies such as the border and customs services, the Interior Ministry and regional administrations. It would be far more effective to block the transit of contraband goods across the border, but to do that would require an overhaul of the entire Federal Customs Service. However, Russia is battling illegal trade. One measure was the closure in June of Moscow’s Cherkizovsky Market — a main retail outlet for contraband goods. However, these measures are insufficient and haphazard. When the authorities shut down one place where contraband goods are sold, traders quickly find another venue for doing business.

However, currently bulk of trade is in US dollars and only about 1% of their dealings involve Russian roubles or Chinese yuan. Moscow and Beijing seek to expand the amount of business they do in their own currencies, rather than the US dollar. The heart of the relationship is Beijing’s thirst for Russian energy – oil and gas make up more than half of Russian exports to China.

The yuan, which has depreciated 6.9% against the dollar since February 2009, remains “undervalued”, the report said. China’s foreign exchange reserves, already the world’s largest, jumped nearly 20% from a year ago to a record $2.27 trillion at the end of September, the Chinese central bank said. Some US lawmakers and industry groups allege that China keeps its currency at artificially low levels against the dollar to gain advantages in trade. During US Treasury Secretary Tim Geithner’s confirmation hearings in January, he had told the Senate that US President Barack Obama believed that China manipulated its currency. That sparked vehement denials from China and prompted a back-down by the Obama administration.

An undervalued Chinese currency means that Chinese products are cheaper for US consumers and American products cost more in the Chinese market. China has said it wants its currency to be internationally convertible but has appeared reluctant to relinquish state control of the currency and economic policy in general. If China had been designated as a currency manipulator, it would trigger negotiations between the two countries and could lead to economic sanctions if the US took a case before the World Trade Organisation.

When it comes to Iran and North Korea, Moscow and Beijing both agree that those countries should not develop nuclear arms, but that it is not worth putting regional stability and economic interests at risk. But both are assisting Tehran with nuclear program for return favors..

China is unhappy over the unfavorable investment climate in Russia. Chinese businesspeople complain about Russia’s confusing laws and other regulations, corruption in regional administrations and law enforcement bodies, and underdeveloped infrastructure as evidenced by the lack of decent roads, hotels and even toilets. The low quality of vehicles produced by the Russian automobile and truck • industry that cannot effectively compete against vehicles available to Chinese buyers and made by other countries. Russian business people’s lack of familiarity with the Chinese market and • business culture. The underdeveloped condition and high prices of Russia’s tourism services. As a result, the number of Chinese tourists visiting Russia has steadily declined since 2004, while the number of Russian tourists visiting China has increased.

Without solutions to these problems, no further development in bilateral trade and economic relations will be possible — even after the crisis. In that case, the only way to raise the trade volume would be through a drastic increase in Russian imports of Chinese goods — but that would only exacerbate other problems. At this stage, the main obstacle on the path to improved trade and economic cooperation is the condition of the Russian economy, and Russian society as a whole. Any further growth in bilateral trade will not be possible without ending corruption, developing an innovative economy and overcoming serious problems with the country’s infrastructure. Ultimately, most of those problems are essentially political, inasmuch as they require political will from the Russian side to resolve.

Pressure is building to find solutions, and not only for the sake of Russia’s relationship with China but for the development of the country as a whole. Failure to resolve those problems will lead to Russia becoming far more dependent on the Chinese market than China is on Russia. Last year, China became Russia’s third-largest trading partner, accounting for 7.6 percent of Russia’s total foreign trade turnover, while Russia was China’s eighth-largest trading partner, accounting for just 2.2 percent of China’s foreign trade volume. What’s more, Russia will become nothing more than a raw materials appendage of China — just as it has already become for Europe.

These emerging “democracies” are seeking to expand the amount of business they do in their own currencies, rather than the US dollar. However, currently only about 1% of their dealings involve roubles or yuan. Beijing and Moscow call it a “strategic partnership”, but in reality it is a lot more complex and fraught with tension. The trade relationship could be described as “you dig it up, we buy it”. Russia is rich in resources: oil, gas, metals and timber. China has a huge appetite. But Russian nervousness about China can be seen in their energy deals. Russia needs to invest billions to build new pipelines to send its oil and gas to China. Beijing has the money, but Moscow will not allow Chinese companies to build and own these pipelines. Instead, China is having to lend Russia the money. It is all about history and demographics. Big chunks of the Russian Far East were once part of the Chinese empire and there is deep concern in Russia that a rich, powerful and over-populated China will one day want it back.

The US Treasury has criticized China for what it described as the lack of flexibility of the Chinese currency, the yuan. It also criticized the rapid build-up of China’s foreign exchange reserves in a report to the US Congress. The Treasury said it had serious concerns about the rigidity of China’s exchange rate. But it stopped short of accusing China of currency manipulation, a politically contentious issue in the past. US aksed China to ensure a stronger, more balanced global economy consistent with the G-20 framework. The Treasury’s latest refusal to describe China as a currency manipulator has drawn fresh criticism from US manufacturers. The US trade deficit with China is its largest with any country. American manufacturers contend that China’s currency is undervalued by 20% to 40% against the dollar, giving the country a huge trade advantage.

But in recognition of the growing need for China’s investments and export markets, Russia was unwilling to press environmental claims against its neighbor when it polluted the Amur River.

A Word
Though much stronger than China, Russia is increasingly unable to resist the charm of China’s economic and political influence. As Russia’s relatively low productivity translates into declining competitiveness, China’s ways of influencing the north continue to expand.

China’s rising importance has translated into the growing prominence of the Sinophiles in Russia’s national discussions. Since the end of the Soviet Union, the China discourse has evolved from one dominated by the Westernizers to one largely controlled by the Sinophiles, who have supporters in the government, energy firms with ties to Asia and the military-industrial complex.

The general public in Russia has also grown more pro-China over time. For example, a June poll by VTsIOM revealed that the share of Russians viewing China as a strategic and economic partner had grown from 34 percent to 41 percent over the past several years. In addition, 47 percent of the respondents voiced optimism regarding the future of relations with China. The Sinophiles are pushing to strengthen relations with China based on Russia’s economic and security priorities. Although they want to protect Russia’s sovereignty, they insist that it would be better protected by closer economic and political ties with China rather than with the West. This is driven by influential leaders in the Defense Ministry, Foreign Ministry and military-industrial complex who want to prevent the United States from dominating global affairs. Creating a multipolar world is necessary to revive Russia’s superpower status. Pushing for a U.S. retreat from Eurasia in the next five years, the advocates of multipolarity call for a political, economic and military union along the lines of a Warsaw Pact with China, India, Iran and other non-Western nations.

Even routine domestic economic decisions in Russia are increasingly made with a consideration for China. For instance, Beijing sent a delegation to Moscow in July to negotiate conditions of a large group of ethnic Chinese affected by the Moscow government’s decision to close the large Cherkizovsky Market following multiple violations of labor and immigration law. Headed by Beijing’s deputy trade minister, the delegation negotiated restoration of the trading area on condition of a Chinese $1 billion investment.
Despite signs that bilateral ties are running smoothly, some experts believe the two nations are banding together out of a common distrust of other powers, rather than a real desire to become closer allies. Despite Russia’s apparent U-turn in favor of sanctions against Iran, the two nations are expected to use Putin’s visit to coordinate their international diplomacy on the nuclear issues involving Iran and North Korea, suggesting that Moscow and Beijing are not getting out of step on the issues in which they have stood side-by-side in the face of Western pressure. China and Russia have both seen the advantages of stronger ties, even if issues such as China’s expanding influence remain thorns in their relations.
The prospect of a growing pro-China tilt in Russia’s foreign policy may force the West to alter its foreign policy course. Rather than trying to secure the 21st century as another American or Western century, Washington do well to prepare for the emergence of a post-Western world and reassess the role that Russia and China will play in this new structure.

Preventing a potentially anti-Western Moscow-Beijing axis means that the US led Western Axis would strengthen its ties with Russia, while preserving strong relations with China. The objective should be not to marginalize or isolate China, but rather to strengthen Russia’s ability to choose its future partners in the post-Western world.

Notwithstanding the onward movement of the bilateral ties, since early this year, bilateral trade volumes have dropped by more than 35 percent compared with the same period last year. And although China’s trade volume has also dropped with most other countries as a result of the crisis, it is falling at the greatest rate with Russia.

Both Russia and China are making all out efforts to stay on in Western orbit for trade reasons and moving, though cautiously, to ensure greater stability in trade with Washington. Russia is running a substantial trade deficit that first appeared in 2007. Second, the share of machinery and equipment in Russian exports has dropped sharply. The trade deficit has decreased somewhat during the crisis because of an even sharper decline in Russian imports compared with exports. (Imports fell by 48.2 percent in the first half of 2009, while exports fell by only 24.1 percent over the same period.) Of course, that hardly constitutes a long-term solution to the problem. .In this sense, the crisis has only underscored the main problems of Russian-Chinese trade and economic cooperation — problems that were well known beforehand and those analysts pointed out long ago.

One does and cannot consider any revisionist policies form both Russia nd China on their socio-political agendas, however!