Russia’s Turn Eastward, China’s Turn Westward

17 june 2016

Cooperation and Conflict Along the New Silk Road

Hans-Joachim Spanger - Member of the Executive Board and Head of Research Department “Governance and Societal Peace”, Peace Research Institute Frankfurt, Germany.

Resume: A careful management of diverging interests and lingering conflicts of Russia and China in Central Asia, and expanding economic links as a gradual approach to economic integration could amount to something the EU can learn—and benefit—from.

“One Belt One Road” is not a Chinese solo,

but a symphony played by all countries along the route.

It is, in particular, an ensemble of China and Europe

joining hands in operating on the great Eurasian market.”

Wang Yiwei, 2015

 

With a delay of three years, Russia appears to once again follow the U.S. example and is now “pivoting” to Asia, which, in essence, means a turn to China, whose rise is changing the overall balance in the region and beyond.

However, the substance of Moscow’s pivot to Asia is quite different from Washington’s. The U.S. essentially considers the rise of China a challenge, if not an emergent threat, which must be met with balancing efforts: strengthening traditional security alliances; building new partnerships with rising powers, including China; engaging with regional multilateral institutions; expanding trade and investment; expanding the military presence beyond the established parameters; and advancing democracy and human rights.

Russia, on the other hand, is evidently focused on the political and economic opportunities inherent in the tectonic shifts in that part of the world. Originally simply attracted by the dynamic economic developments in Asia and China, after the Ukraine crisis and Western sanctions Russia has lost alternatives; its interest in the East has turned into a necessity. Today Russia’s Asia/China pivot has become an integral part of a major paradigm shift with much broader implications.

Concurrently with Russia’s turn to the East, China started marching West—for example, through the rejuvenation of the Silk Road (One Belt One Road project inaugurated in 2013). The Chinese goal of “Move West” (as suggested by one of the country’s most prominent international relations scholars, Wang Jisi) is to counter the U.S. pivot in East Asia while avoiding fruitless confrontation. Pushing forward in East Asia would inevitably lead to such confrontation, whereas the space to the west of China—that is, Central Asia and the Middle East—is characterized by a U.S. withdrawal. Thus, a turn to the West would not only facilitate China’s advance, but also open up prospects for cooperation, as Chinese and U.S. interests in the region intersect—particularly with regards to economic investments, non-proliferation, and regional stability.

Although Moscow and Beijing are united in their effort to rebalance the U.S., turning East and turning West, respectively, it does not necessarily lead to a confluence of the countries’ geostrategic objectives. Rather, these turns call for a careful management of the conflict potential inherent in them.

THE RATIONALE

Russia’s turn to Asia in general and to China specifically is natural: everybody is eyeballing China in an effort to find new market outlays, and in these economic terms, Russia has much room to improve and expand. Moreover, although essentially a continental power, Russia—like the U.S.—is also an Atlantic and a Pacific power. It is, however, much less balanced than the U.S.: despite the fact that Russia’s access to the Pacific is much broader than its Western shores, its center of gravity clearly resides in the western part of the country, having left the portion east of the Urals far behind—if not entirely neglected.

Rebalancing becomes an even more urgent task considering that the U.S. has professed to build in the Asia-Pacific what it has achieved in the transatlantic area: a “web of partnerships and institutions,” of which TPP is the most recent example. And, of course, Russia shares a 4,200 km-long border with China, the largest border with a major power—and arguably the most peaceful in Russian history, as opposed to its borders with Europe or Turkey, where most military incursions of the last centuries have taken place.

From the very beginning, rebalancing also meant engineering a new development push for the adjacent territories, namely Siberia and Russia’s Far East. The exploitation of Russia’s unique natural resources in those territories naturally calls for customers in geographical proximity and opens an opportunity of turning the region into a bridge between the dynamic poles in the East and the West. It also has a precautionary political element, that is, preventing external threats from potentially expansionist neighbors and internal threats from separatist moods in the region.

And yet Russia’s pivot to the East goes well beyond purely pragmatic considerations, and occasionally raises fairly grandiose expectations with explicitly “geopolitical” connotations: “Today, the single Eurasian space—China with Southeast Asia and Russia with the Eurasian Union, plus India, the Middle East and Africa, which are also becoming increasingly Eurasia-oriented—is squeezing out the economy of the previously omnipotent trio of the United States, Europe and Japan.”

Russia’s moves clearly follow its aim of doing away with the “U.S.-led Western-centric” world by adding substance to a multipolar international order, which Putin first alluded to at the Munich Security Conference in early 2007. According to Dmitry Trenin, this overall goal has given rise to a substantially revised political map in the Kremlin: Putin’s original vision of a “greater Europe” from Lisbon to Vladivostok, comprising the EU and the Eurasian Economic Union (EEU), is being replaced by a “greater Asia” from Shanghai to St. Petersburg. In this sense, Eurasia, at a minimum, is considered to become the new center of economic and political gravity, where Russia and China set the tone without undue U.S. interference.

In the same vein are Russia’s efforts to enlarge the Shanghai Cooperation Organization. With the admission of India and Pakistan at the Ufa summit in July 2015, the SCO now includes all leading non-Western powers of Eurasia and can therefore “be regarded as an emerging cornerstone of the multipolar world in the making, a platform offering a Eurasian alternative to Western Europe. As the EEU strives to come up with an economic alternative to the EU, the SCO could offer a political and ideological alternative.”

THE RECORD

Undoubtedly, Russia’s China pivot has accomplished a lot in a fairly short period of time. Whereas the “strategic partnership” between Moscow and Brussels never managed to move beyond pallid declarations, that between Moscow and Beijing has given rise to a truly preferential relationship. Putin is quite right when he states repeatedly: “As for the People’s Republic of China, the level, nature and confidence of our relations have probably reached an unprecedented level in their entire history.”

Proof of the countries’ close alignment is, for example, the fact that the Russian Embassy in Beijing is second only to the embassy in Washington and that—contrary to standard practice—China boasts four inter-governmental commissions, all of which are overseen by Russian deputy prime ministers. Frequent mutual visits and piles of agreements concluded and signed during these occasions complement the overall picture. The fact that China essentially sacrificed another partner it had previously been close with—Ukraine—also testifies to the importance Beijing attaches to its relations with Moscow. Beijing kept silent on Russia’s violation of the once upheld principle of state sovereignty and territorial integrity (as does Russia with respect to China’s territorial ambitions in the East and South China Seas, which also involve an equally close partner, Vietnam), but it has not hesitated to condemn Western sanctions, and backed Russia in its efforts at damage control.

The economic exchange between Russia and China—at least as far as trade is concerned—presents a similar picture. Since 2010, China has been Russia’s biggest trading partner with bilateral trade having reached $95 billion in 2014 (in the 1990s it hovered around a mere $5-7 billion annually). Based on this success, it became an officially declared objective to increase Russian–Chinese trade to $100 billion by 2015 and to $200 billion by 2020, which, in light of an average growth rate of around 30% prima facie, did not seem improbable. In 2015, however, Russian-Chinese trade could neither escape the economic downturn in both countries, nor the decline in global energy prices: it recorded a 28% decline (down to $62 billion with Chinese exports having dropped 34% and Russian exports 19%, both by and large in line with the decline in Russia’s sanctions-hit trade with the EU), rendering these ambitious goals out of reach for the time being.

Mutual investments have been much less progressive: as of the end of 2013, the total of Chinese investments in Russia approached $5 billion (of a Chinese total of around $115 billion), while Russian investments in China reached only $860 million. Some have named Russia’s informal limitations on all Chinese investments in sensitive sectors such as energy, mining, and infrastructure as one reason—for the last fifteen years Chinese companies were not exactly encouraged to bid on large infrastructure projects in Russia. Moscow’s concerns allegedly included increased competition for (well-connected) local companies and a possible influx of Chinese migrant workers. Plans for the construction of new stations for the Moscow Metro and for a high-speed railway line from Moscow to Kazan—originally negotiated with Siemens—are the first practical signs of increased opportunities for Chinese engagement.

A fairly new feature is financial cooperation, partly a response to Western sanctions, and partly driven by the aim to overcome the dominance of the U.S. dollar. In 2010, the Moscow Interbank Currency Exchange launched trading in the ruble and the yuan, but sales hardly got off the ground. The situation changed drastically in October 2014, however, when the Central Bank of Russia and the People’s Bank of China signed a three-year currency swap agreement worth over $24.5 billion. Whereas in 2013 ruble-yuan settlement accounted for just 2 percent of bilateral trade—in spite of numerous declarations to the opposite effect—the two are now aiming at 50 percent.

After years of protracted price negotiations, the first big gas deal was finally sealed in May 2014. It concerns the so-called “Eastern Corridor.” The natural gas from two remote fields east of the Baikal—the Chayandinskoye and Kovyktinskoye deposits—will be delivered via a newly built pipeline called “the Power of Siberia” with a contracted final capacity of 38 bcm annually (possibly to be extended to around 60 bcm at some point in the future). The gas price has not been disclosed, but reportedly the terms and price formula are comparable to what Russia agreed on with its European customers.

On November 10, 2014 Moscow and Beijing signed one more memorandum of understanding on gas supplies along the “Western Corridor,” which intends to connect fields in Western Siberia, currently supplying Europe, via a pipeline through the Altai Mountains with China. Theoretically, this will allow Russia to switch between its customers in the East and the West for the first time, and it will be the first project to realize Gazprom’s once avowed aim of transforming the “European” gas market into a “Eurasian” market which it can randomly service.

Contracts on Russian crude oil exports, such as the one between Rosneft and China National Petroleum Corporation in 2013 (on the delivery of 360 million tons of oil during twenty-five years), complement the picture of a belatedly emerging energy alliance between Russia and China.

Certainly, the natural resource complex of Siberia and the Far East, consisting of oil, gas, coal, metals, timber, and others, as well as their proximity to Asian countries, are the most obvious—and for now Russia’s most important —assets and competitive advantage. Based on this, the region is expected to receive a more coherent and efficient development strategy than previously. There indeed exists a new “Federal Targeted Program for the Development of the Far East and the Baikal Region” for the next five years, as well as a “List of Priority Investment Projects in the Far Eastern Federal District,” approved by the Russian Government, and, not least, Putin’s instructions to create points of economic growth in his address to the Federal Assembly of the Russian Federation on December 12, 2013.

Optimism about significant improvements in the region, however, is limited. The performance of the Ministry for the Development of the Russian Far East, established in 2012, for example, is assessed highly critically by Russian experts. And according to Chinese complaints, Russia has failed to instigate even the most basic preparatory efforts for favorable investment conditions. Similarly, there exist no appropriate transport links along the border, nor has Russia managed to build its part of the 2.2 km bridge across the Amur River, a promise it made in 2007—and reiterated again in 2014—without much activity to follow since. Chinese critics attribute this lack of engagement to Russia’s lingering suspicion of Chinese participation in the development of Siberia and the Far East, which allegedly implies a fear of Chinese capital and the influx of Chinese migrant workers.

Military cooperation with China, however, has intensified considerably in the past few years. Military exercises such as the “Naval Interaction/Joint Sea 2014” Russian-Chinese military naval exercise (May 2014, the largest ever, though still fairly small, consisting of only six ships on either side), the “Peace Mission 2014” military exercises (August 2014), and the “Sea Cooperation 2015” naval drills (which surpassed the Chinese-Russian theater in the Mediterranean, May 2015), exemplify this. The next bilateral naval exercises are scheduled for 2016 in the western Pacific.

Arms delivery and armament cooperation is another field in which previous obstacles and reservations have been overcome—again, belatedly. Whereas in the 1990s, military-technical cooperation constituted one of the pillars of mutual trade and China’s share in Russian arms export was quite sizeable, it gradually declined during the following decade. One of the reasons for that is reminiscent of Western business: Russia was concerned about the Chinese propensity to copy Russian equipment. The last large orders were reportedly placed in 2007. However, considering the serious crisis between Russia and the West, well-informed observers expect a further intensification of military and military-technical cooperation, which would imply expanding the range of technology that Moscow is willing to supply to Beijing: “By all appearances, the rest.”

PROBLEMS AND RISKS

Despite the recent increase in mutual cooperation and noticeable achievements, a good number of problems, risks and competing objectives remain between Russia and China, which might not necessarily jeopardize progress, but will certainly complicate and slow it down.

On a most basic level, China, in many respects, is terra incognita for Russia and ordinary Russians. This attitude comprises a stark contrast to Russia’s perspective of the West. A lack of experience and knowledge thus dominates Russian popular discourse about the country’s state of affairs with China. But this attitude is equally as common on the Chinese side, where very little mutual appeal and understanding exists as well.

Moreover, whereas Russia’s relations with the West are often marked by an inferiority complex, the country harbors sentiments of cultural superiority vis-à-vis Asia (yet not necessarily vis-à-vis China). Conversely, whereas Russia’s “Europeanism” has always been a matter of identity, Russia’s “Asianism” is just a pragmatic choice.

 That being said, Russia’s alleged pragmatism remains compromised by a lingering uneasiness about China’s rise. In contrast to Western allusions to the “yellow threat,” Russia’s fears are compounded by a pertinent and peculiar concern: the growing economic and demographic asymmetry between China and the sparsely populated Siberia and the Far East.

The economic relations between Russia and China are characterized by a number of asymmetries, some of which pose challenges and others, opportunities. One such asymmetry is the gradually increasing gap in the countries’ GDPs, which, according to Russian observers, constitutes “the main challenge to Russian-Chinese relations” today: Russia’s amounts to only about 20 percent of China’s. Even more problematic is the asymmetry in the two countries’ dependency ratio: at just 1.76 percent in 2009 and 2.15 percent in 2013, Russia’s share in China’s foreign trade remains small, while China occupies the top rank in Russia’s foreign trade, with its share hovering well above 10 percent. This asymmetry has sparked concerns that “China has been diversifying its trade, while Russia has been growing increasingly dependent on the Chinese market.” In addition, as trade still constitutes the overwhelming part of economic relations, the interdependence of the two countries remains extremely low.

The most significant imbalances, however, are found in the structure of trade, which has undergone a very unfavorable transformation during the past ten years. In 1999, the structure of Russian imports from China was fairly balanced between processed goods (such as metals, plastic, textiles, footwear, machinery) and unprocessed goods (such as wood and vegetables). By 2013, however, these imports were clearly dominated by high value-added products (notably machinery and electronic products) amounting to 48%. On the export side, just the opposite happened: In 1999, ferrous metals and machinery accounted for 39% of Russian exports to China (with fuels at a negligible 6%), but in 2013 only 4% was left of these products, as oil and other energy products reached 74%.

Of course, such large export shares of oil and gas to China imply a dependency of Russian deliveries on Chinese resource policy, and it has been argued that China, by turning to Russia, is simply seeking to minimize its risks in the sector of energy imports. At present, oil and gas imports from Russia make up just 6% and 4%, respectively, of all Chinese supplies of these two energy carriers.

As in the case of Europe, there is growing concern that Russia might become a mere resource appendix of China. This rings all the more true considering that the countries’ ambitious goals for expanding mutual trade will allegedly only be reached if the current structure of bilateral trade is preserved: by increasing Russian commodity exports and Chinese machinery imports.

Russian trade with China is an exact replication of Russia’s trade with the West, particularly with the European Union. In that sense, it does not help propel structural change, but rather reinforces the status quo. Since 2014, there have certainly been exchange rate effects on the country’s foreign trade—the detrimental consequences of the Dutch disease on Russian exports might be rectified by the marked weakening of the ruble in the wake of declining oil prices—but Russia’s trade pattern first and foremost reflects structural deficiencies. If Russia doesn’t modernize and diversify its economy, increase its innovation potential, the ties with China will remain one-sided: Russia will export raw materials, energy resources, military equipment and, in return, receive consumer goods, car manufacturing products and so on.

In its turn to the East, Russia is facing the same adaptive pressures as in its time-tested relations with the West. It remains to be seen whether the “Modernization Partnership” between Moscow and Beijing will produce more tangible results than the ones it established with the EU and most of its member states around the same time. This is equally important with regard to making proper use of the opportunities presented by China’s OBOR strategy.

THE SILK ROAD AND MANAGING COMPETING INTERESTS

Much to Moscow’s chagrin, Europe is facing Russia as a fairly unified front, which makes playing one state against another exceedingly difficult. In Asia, the situation is completely different. Here, Russia is operating on a true minefield of competing territorial claims, historical animosities, and shifting alliances. This situation has the potential to become even more uncomfortable than the one in Europe, as Russia might be forced to take sides—in particular since China is more or less directly involved in most cases. This, for example, concerns relations between China and India, the latter being Russia’s time-tested partner and prime weapons customer. It also concerns the even more strained relations between China and Vietnam, where the latter has not only been the subject of a Chinese military incursion, but is also engaged in a bitter struggle over the Spratly Islands in the South China Sea. And it concerns the deteriorating relations between China and Japan, with which Russia is trying to overcome the remnants of World War II in its “two plus two” talks on what Japan calls “Northern Territories.” Chinese representatives have made unmistakably clear that, in spite of diverging views, Beijing expects Russia to remain at least neutral and sensitive to its interests.

One area that for some time appeared in danger of open conflict is Central Asia. China’s presence in the region has expanded steadily, and received a possibly far-reaching boost in late 2013, when President Xi Jinping announced the two Silk Road proposals: The Silk Road Economic Belt (in Astana on September 7) and the 21st Century Maritime Silk Road (in Jakarta on October 3). Both initiatives, labeled “One Belt, One Road” (OBOR), are meant to establish a connection between China and Europe. This implies building necessary infrastructure, constructing “key economic industrial parks as cooperation platforms,” and removing trade and investment barriers along the Belt proper and along economic corridors that link adjacent regions to the Belt.

So far, the official “vision” for OBOR has been fairly vague. It is said to embrace “the trend towards a multipolar world, economic globalization, cultural diversity and greater IT application” and is designed to uphold the global free trade regime and the open world economy in the spirit of open regional cooperation.” Less vague, however, has been the staggering amount of monies China plans to invest in this initiative. In 2014, a $40 billion Silk Road Fund was set up to cover the necessary investments. In addition, China announced a provision of $46 billion to finance the Chinese-Pakistani economic corridor; Prime Minister Li Keqiang is said to have committed at least $94 billion to finance specific projects; and China’s National Development and Reform Commission has indicated that as much as $800 billion might be available for projects over the next ten years.

A number of Chinese motives have been put forward as reasons for the OBOR initiative, which is currently turning into a grand strategy and a pet project of the Chinese leadership.

First of all, the historical Silk Road raises largely positive connotations, representing a desire for a peaceful and mutually beneficial exchange. As such, OBOR serves as a perfect diplomatic soft-power tool to promote Xi Jinping’s “Chinese Dream” of “restoring” China’s previous and rightful place as a world power. In a more mundane fashion, it reflects the Chinese desire to no longer confine itself to the East Asian region, whether to avoid confrontation with the U.S., or to diversify relations and explore new opportunities, commensurate with China’s rise and its global ambitions.

In economic terms, OBOR links up with the need for a development push in China’s western and central provinces, which are lagging seriously behind the dynamic coastal areas. It therefore complements the “Grand Western Development,” a national strategy launched back in 2000. The prime emphasis of OBOR is on connectivity, as outlined in the official “vision:” it aims to “set up all-dimensional, multi-tiered and composite connectivity networks, and realize diversified, independent, balanced and sustainable development in these countries.” Therefore, the countries along the Belt and Road should “improve the connectivity of their infrastructure construction plans and technical standard systems, jointly push forward the construction of international trunk passageways, and form an infrastructure network connecting all sub-regions in Asia and between Asia, Europe and Africa step by step.”

Considering that even East and Central Asia have no shortage of institutions that are meant to foster cooperation, frustration about their performance may have also played a role in the instigation of OBOR. More specifically, these feelings concern the Shanghai Cooperation Organization (SCO), which used to be Beijing’s preferred vehicle for regional security and economic cooperation. China has pushed for a greater economic role of the SCO for years, suggesting the creation of a legal framework for a free trade zone, a business council, a regional development bank, and, in the wake of the economic crisis of 2008/2009, an anti-crisis fund. These initiatives have been spoiled by Russia or by Central Asian states in various ways.

OBOR signals that China is ready to embark on a much more activist, unilateral course, which certainly is not aimed at Russia, but nevertheless seriously affects Russian vested interests—particularly in the on-shore variant. For example, Russia’s favorite organization, the Eurasian Economic Union (EEU), is directly affected by OBOR, as some of the countries targeted by China for inclusion in the Belt are members (such as Kazakhstan and Kirgizstan) or potential future members (such as Tajikistan). This inevitably raises concerns about overlapping spheres of interest. In addition, OBOR may also become a competitor for Russia on infrastructure development. Originally, Russia was accorded only a peripheral role in the concept, as the main part was geared towards the region south of its border. This was vexing for Russia, as it keeps advertising its territory as the main corridor for transit between Asia and Europe, limited capacity notwithstanding.

In fact, OBOR implies that various on-shore corridors be developed to transport goods from China to Europe and vice versa, all of which are considered superior and preferable to congested and time-consuming maritime freight. Of these corridors, the northern route is the longest but most established, split between the Trans-Siberian Railway and a route running south of Mongolia via Kazakhstan to Russia and on to the ports of Rotterdam and Duisburg. These connections have been used extensively, for instance by Deutsche Bahn. Rail freight service on the route via Kazakhstan has been operative since 1992.

On the southern route that eschews Russia, various trial connections have recently been tested. These newly emerging connections have several comparative disadvantages, such as numerous customs controls, but they are being energetically expanded and could one day become a true rival to the much longer northern routes. One such trial took place between China and Tehran in early 2016 and is expected to become a regular freight service running once a month. In 2015, DHL also commissioned shipping from Lianyungang in China via Kazakhstan, Azerbaijan, and Georgia, including two sea transit segments, for arrival in Istanbul within 14 days.

This connection is managed by the Coordination Committee on the Development of the Trans-Caspian International Transport Route (TITR), initiated by Kazakh Railway and combining ports, railways and logistics businesses from Azerbaijan, Kazakhstan, Georgia, Turkey, and China. Recently, Ukraine has developed some interest in this Trans-Caspian connection, likely (and ostentatiously) as a means to bypass Russia: on January15, 2016, Ukraine dispatched a 30-car container train from Ilyichevsk/Chernomorsk on a test journey through Georgia, Azerbaijan, and Kazakhstan to China.

Although the Ukrainian jump on the bandwagon might be indicative of the fact that some countries along the Belt would like to use the Russian-Chinese connectivity competition to their advantage, the real challenge for Russian interests is the predominantly bilateral nature of the OBOR initiative which calls for the development of “a number of bilateral cooperation pilot projects” and the establishment and improvement of “bilateral joint working mechanisms.” At the same time, it also aims to “enhance” the role of multilateral cooperation mechanisms, notably the SCO, ASEAN Plus China (10+1), the Asia-Pacific Economic Cooperation (APEC), the Asia-Europe Meeting (ASEM), and even those aligned with the (Japan-dominated) Asian Development Bank, such as the Greater Mekong Sub-region (GMS) Economic Cooperation and the Central Asia Regional Economic Cooperation (CAREC).

Conspicuously absent from this list is the EEU. This is all the more surprising considering that further west, since 2012, China has entered into an intensive annual dialogue with a total of 16 Central and East European countries (the so-called 16+1 cooperation format), including EU members and non-members. In 2014, while speaking in reference to OBOR, Chinese Prime Minister Li Keqiang called these countries “the eastern gate to Europe” and promised material assistance for them as “express links” between China and Europe and within Europe. In concrete terms, he announced a $10 billion Chinese credit line for infrastructure development and an agreement to build a new high-speed railway link from Budapest to Belgrade—which could possibly be extended to the Greek port of Piraeus, the endpoint of the Maritime Silk Road.

It is not surprising that it took some time and apparently “painful internal discussions” for Russia to come to terms with the Silk Road project. On May 9, 2015, Putin and Xi Jinping finally signed a joint declaration “on cooperation in coordinating development of the Eurasian Economic Union and the Silk Road Economic Belt.” Moscow and Beijing confirmed their intentions to coordinate the two projects, in order to build a “common economic space” in Eurasia, including a Free Trade Agreement between the EEU and China—which had previously been put on hold in the framework of the SCO.

China is ready to accept the EEU as a negotiating partner in addition to individual member-states, even though it will hardly resort to a “Moscow-first” policy (which, by the way, is equally unpopular in Central Asia as it is in Central Europe). Similarly, Moscow has put its security concerns and its claim to an exclusive sphere of interest on the backburner, without, however, forfeiting its suspicions about undue foreign mingling in its backyard.

This benign management of mutual concerns certainly originates from the “strategic” character of the relationship between the two countries. On top of that, the very nature of the Chinese project also helps mitigate the potential for conflict. Contrary to European and Western approaches to regional integration, which rely on multilateral treaties, legally binding rules and standards, collective dispute settlement mechanisms, and supranational institutions, the Chinese style of economic integration is primarily focused on economic facilitation. It suggests that China supply leadership in the form of initiating discussion, advancing cooperation proposals, lowering information and transaction costs for cooperation partners, and providing them with material incentives such as new infrastructure, credit, investment, and trade opportunities. Combined with financial stimuli of unprecedented proportions, this style comprises a much greater incentive for cooperation than the European combination of regulatory demands and material parsimony.

Nevertheless, with respect to OBOR, Russian observers have noted “unacceptable delays in elaborating a common approach.” In virtually every respect—foreign investment support, arbitration, industrial cooperation, transport infrastructure—EEU members are said to have “failed to even decide on a common approach.” Indeed, there exist a number of structural impediments. For instance, multilateral coordination is more time-consuming than bilateral negotiations; OBOR is not equally important to all EEU member states (Armenia and Belarus are hardly affected by it); and common EEU-OBOR projects are overall inconceivable insofar as the EEU is essentially a regulatory body and not (yet) a supranational entity. Finally, it is obvious that OBOR is a Sino-centric project in which Russia can only play second fiddle—a role it has never been content with.

Others are less reluctant than Russia, and this points to the potentially most important factor—the financial inducements have apparently started a race for the best place in the sun, a behavioral pattern that has been known as quite common in competitive development cooperation. This dynamic vastly plays into the hands of Chinese bilateralism. As Kazakhstan’s foreign minister, Erlan Idrissov, has stated, “Our philosophy is simple: We should get on board that train.” The first visible signs of this bilateral “train ride” include the joint construction of a logistics terminal in the Chinese port of Lianyungang to facilitate the transportation of goods from Central Asia to overseas markets, and the joint project with China of a “dry port” in Khorgos at the Kazakh border, which is to become a major distribution and transshipment hub for goods bound between China and Western Europe, and has been ambitiously dubbed a “mini-Dubai.”

Apart from the competition for connectivity and the pitfalls of Chinese bilateralism, Russia and China share an important common interest in Central Asia: they both seek support for political stability and the maintenance of secular regimes in power, irrespective of the (autocratic) nature of these regimes. That this confluence will eventually lead to a Russian-Chinese “condominium” in Central Asia, in which Russia will be the guarantor of security and China the largest economic player, is probably too rosy an image of the future division of labor, even if one considers the interests of the regional powers in mutual reassurance against one-sided dependencies. Those engaged in propagating the accord seem to be torn between the notorious impression that Moscow’s activities in this respect are “one of the most important indicators of Russia’s comeback as a global power” and the more down-to-earth assessment that the cooperative taming of the Silk Road is “an effective instrument of trade protection for the national market” of the EEU member states.

Some support and relief for Russia may be derived from the fact that in spite of the many material incentives, OBOR is regarded with quite a bit of skepticism in other parts of the world, familiar with the Chinese way of pursuing its core interests. For instance, one might fear that Central Asia could end up like Africa and Latin America—as a raw material appendix and dumping ground for Chinese excess production—in which case OBOR would almost certainly lead into a dead end. The same would apply if the creation of connectivity turned out to be no more than a job creation program for Chinese infrastructure companies, rather than an actual economic stimulant for the region.

PROSPECTS

Skeptics of Russia-China relationship in Eurasia, such as Robert Kagan, for example, warn about “the coming battle between autocratic nations like Russia and China and the rest.” A sober look at the situation, however, reveals a more nuanced picture.

First of all, Russia has to come to terms with its powerful neighbor. There are four interrelated Russian concerns: the prospect of being no more than the junior partner of China, the fear of ending up as a resource appendix of the dominant neighbor, the anxious expectation of an influx of Chinese people (and in some instances of its capital), and the risk of having the Central Asian sphere of influence wrestled away by the OBOR inducements. These apprehensions have been recurrent subjects in the Russian debate about its Asia pivot. The first is usually offset by Russia’s nuclear deterrent, on par with the U.S. and well ahead of China’s; the second, by the argument that having been a resource appendix of the EU proved risky but not detrimental; and the third and fourth, by pointing to mutual benefits and the possibility of exerting control through cooperation. In any case, these concerns are reminiscent of Russia’s grievances in its relationship with the West, and have been identified by many as the prime cause of its current estrangement from the West. Conversely, the current Russian-Chinese rapprochement is clearly a function of Moscow’s demarcation from the West—and thus possibly conditional and temporary.

More generally, in Moscow, Russia’s Asia pivot is also considered a natural byproduct of the global power shift at the expense of the traditional West and as a building block of a new—multipolar—international order. In this regard, cooperation with China is said to “objectively strengthen Russia’s position in the international arena as an independent center of power.” However, Russia’s high-profile offensive also carries serious risks. Acting as a battering ram not only reflects a fairly one-sided division of labor between Moscow and Beijing, with China gently marching through the gate pushed open by Russia, washing its hands of responsibility by expounding at best “a new model of major-country relationships.” It also implies overstretch and a misallocation and waste of precious and ultimately scarce resources—with a repeat of the fate of the Soviet Union looming on the horizon.

As of right now, China is not venturing to upgrade its relationship with Russia to a level of exclusivity, which would then target other countries or alliances. Rather, Beijing seems to be rejuvenating the art of triangulation between Moscow and Washington, if not opting straight for a G2 with the U.S. as the prime source of its economic progress. So far, China and Russia seem content with assurances of mutual respect and a simulation of equality and equity—something Moscow rightly keeps complaining it failed to receive in the West. Moreover, a careful management of diverging interests and lingering conflicts of Russia and China in Central Asia, and expanding economic links as a gradual approach to economic integration could amount to something the EU can learn—and benefit—from.

Sino-Russian economic relations only partly fit into this positive picture, as the record is much less encouraging in this regard. Essentially, current economic relations follow an energy-driven diversification strategy, which Russia needs as badly as the EU. Cutting back on its overdependence on the West—the prime destiny of its energy exports and the prime source of its value-added imports—has become even more urgent in light of the vulnerability that Russia encountered as a result of Western sanctions. However, the downside of that approach is as follows: while it expands Russia’s base of customers and suppliers, it preserves old structures; Russia is not conquering the Chinese market with new products, but rather redirecting the flow of its old commodities while taking in ever more imports from China. Preserving structures—political as well as economic—has always been fairly high on Putin’s conservative agenda, and it may once again prove insufficient.

This article is a shortened version of the paper written for the Valdai International Discussion Club. The original copy is available at: http://valdaiclub.com

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