Russia’s Asian Strategy

2 july 2011

Sergei Karaganov, Doctor of History, is Dean of the School of World Economics and International Relations at the National Research University–Higher School of Economics. He is also Honorary Chairman of the Presidium of the Council on Foreign and Defense Policy.

Resume: For some Russians economic movement towards Asia spells deviation from the European way of development and closer relations with Europe.

For some Russians economic movement towards Asia spells deviation from the European way of development and closer relations with Europe. 

For the past four years or so, in all sorts of analytical reports and speeches I have been criticizing Russian policy in Asia for the lack of initiative for linking this country to the Asian economic locomotive. In the meantime, the United States, Latin America and – in many respects – Europe have attached themselves to this engine quite successfully.

True, in the past eighteen months the situation began to improve. Both the president and the prime minister on several occasions have pointed to the need for an economic turn to Asia. The top officials of the Russian Foreign Ministry have repeatedly come out with reasonable proposals. Dozens of protocols and agreements on new projects have been signed with China. Some are already up and running – for example, on oil pipeline to the Pacific coast with a branch towards China. The construction of a pipeline has begun, a project for building a pulp and paper mill is reported to start soon, and a number of mining projects have been launched. The Trans-Siberian highway has been opened to traffic – to our dismal shame we did not have one until just recently.

There have emerged interesting intellectual products. The Russian National Committee of the APEC has issued a report calling for Russia’s new strategy in the Pacific. Well-remembered is the brilliant article A Turn to the East by Professor Victor Kuvaldin, an expert at the Gorbachev Foundation. The need for turning Russia towards new Asia has been recognized in chorus by some leading experts on international affairs who would seldom look eastwards, if at all, just five years ago: Yevgeny Bazhanov, Fyodor Lukyanov, Vyacheslav Nikonov and Dmitry Trenin. The ice has been broken. 

But apparently, any long-term and comprehensive Asian strategy is yet to be devised. It is vital and must be linked with the strategy for the development of the entire country, and not just its Siberian and Far Eastern regions. And it must be coupled with the domestic policy, which suffers from the clots plugging the channels of upward mobility and lack of decent career opportunities for ambitious, creative and educated young people – “the generation of the 1990s,” in fact the country’s first free young generation. Until now many young people have been voting “with their feet” in favor of living abroad, while the less educated have been getting rebellious. 
The Strategy 2020 drafted on Vladimir Putin’s order does not seem to provide for a decisive turn towards Asia. Meanwhile, it is an urgent need. 
But first it is important that a wide range of people of thought and action see where Russia’s interests regarding possible strategies in Asia lie. After much discussion and research I have arrived at the conclusion that the main force holding us back from pursuing a reasonable and purposeful Asian policy is ignorance, misunderstanding of the opportunities, and myths about the real state of affairs in that region.

To the Russian public mind and most of the elite, China is still a threat than an opportunity. It is believed that China may directly threaten Russia’s sovereignty. At the same time, there is a grievous underestimation of both the current level and prospects of its development. There is a hidden – and often overt – expectation that China will be not be able to develop as expediently and fast as it does now for too long.

For some Russians, the economic movement towards Asia is tantamount to departure from the European way of development, from closer relations with Europe, and even to the adoption of the Chinese model, which is still more undemocratic than ours. Another group of our fellow citizens, on the contrary, hope that we are still capable of flexing muscles and go the Chinese way. 

Widespread is the illusion that we can and must fight for positions in the markets of the New World and in Asia with our innovative, high-tech industrial products. 

Our knowledge of South-East Asia is confined mostly to images of health resorts and tourist musts.

I will try to allay these fears and illusions and draw what looks to me an adequate picture of the present-day developments in Asia, and then I will outline a strategy – above all, a foreign economic one – towards this rapidly rising continent.

But first a few facts that look indisputable to me.

There is no Asian alternative to Russia’s cultural and political orientation towards Europe. The great Chinese civilization and its “peripherals” – Japanese, Korean, Vietnamese and other Indochinese – are incredibly far away from the Russian one. And their social experience in Russia is inapplicable. It is another matter that some of their economic innovations readily offer themselves for copying. The embattled civilization of the Muslim world is a little closer to us. But its best experience is already in use (take a look at Tatarstan); as for any other, it would be far better to steer clear of it. 

“The Asian way of development” will take us not to advanced Asia (we cannot go there), but to Africa – where we seem to be already moving with our monstrous corruption and disdain for morality and culture. And if things go on like that, the joke by Helmut Schmidt, the West German chancellor and a brilliant wit, in which he called the Soviet Union “Upper Volta with missiles,” which then looked an insulting exaggeration, may become a reality.

Estrangement from Europe threatens us with the further loss of the country’s identity and social and cultural degradation. Either we move closer to Europe, or go barbaric. Russian civilization – with all its ethnic flavor – is still part of the European one. And without that it cannot exist as a civilization. 

Partial economic reorientation towards Asia, which I have been pressing for, also is not fraught with the risk of disengagement from Europe, because over the past two years or so Russia has officially made a decisive (although superficial) turn in favor of a closer integration with the European Union –  through overcoming the residual military confrontation (President Medvedev’s idea of a new treaty on European security and his and chancellor Angela Merkel’s Meseberg initiative for establishing a mechanism of online coordination of Russian and EU foreign policies). And even more – through Putin’s ideas, advanced in recent months, of a single, integrated economic and humanitarian space of Greater Europe and the formation of a single energy complex. The point at issue is movement towards a Alliance of Europe. Another thing is that, in the context of our current domestic situation and because of the progressing incapability of the EU, progress in promoting the implementation of these ideas has been extremely slow. But the guideline has been declared. 

Now, about China. 

By virtue of several internal reasons its fast growth is bound to last long enough. Despite the slowdown in population growth, no labor shortages are due there for a decade or two. At the same tome, an accelerated technological modernization is guaranteed with increasing investments in science and education. Already now China accounts for more than 20 percent of the world’s export of high technology goods. The United States’ share is 13 percent, and Germany’s, 9 percent. Singapore is next with almost 7 percent. Russia’s share of this market is several tenths of one percentage point. And it is shrinking.

Chinese high-tech goods are manufactured with imported or replicated know-how. But investment in education and science helps improve the quality of human resources, and China develops ever more new technologies of its own. The United States is recognizing with alarm that China has already become the world’s leader in the most advanced sector – green energy. 

In most industries competition with new Asia will be senseless. Especially if one bears in mind the strength, quality and – most importantly – high cost of labor in Russia. The exodus and aging of research and technical personnel have to be taken into account, too. This situation has to be changed. But the tendency of lagging behind stems from the policy of recent decades.

Industrial production is drifting to new Asia from far more developed countries. Something can and should be retained – two or three industries, or maybe three or four, if it is possible to unite them those of Europe and create trans-European manufacturing complexes. But fighting on all fronts, declaring the need for new industrialization is, at best, harmful idealism. 

We have already witnessed Chinese military parades demonstrating hardware of exclusively domestic manufacture, albeit partially replicated. Russia’s military export to China is declining rapidly, and in five to seven years from now there will emerge the question of technology purchases from China.

More than 50 percent of Russia’s trade turnover is currently with Europe. Along with other Europeans, Russians keep recalling this with pride. But the problem is the European market will not be growing to any significant extent any more. Europe has entered a period of slow economic development. I am not predicting a “decline of Europe” once again. It retains strong accumulated resources and a high quality of life; both can be consumed for a long time. The quality of life plus the accrued cultural wealth will allow the old continent to live in relative comfort in the foreseeable decades even if it will be gradually ceding positions in the production of goods and knowledge – even though it will increasingly turn into a tourist and ecological paradise, a place of rest and leisure for many hard working people from new Asia. The latter is already overcrowded, lacks recreational resources and experiences relative paucity of material culture, which, in contrast, is marvelous in Europe. 

Russia needs to integrate economically with the rest of Europe, primarily with the remaining engines of innovation available there, especially German ones, and to move towards a pan-European economic space, a single energy complex of Europe, while staying aware that the growth potential of foreign economic relations is in the Asia-Pacific region. 

Today that region, including the U.S., accounts for about 20 percent of Russia’s foreign trade. This share is growing – yet very slowly.
Partner number one is China. Russia supplies it with fertilizers, seafood, timber, nonferrous metals, and more and more crude oil, and ever less industrial products. Mutual investment is meager, and not only in relations with China, but also with other APEC countries. Russia exports from China not so much consumer goods as engineering products.

Such trade dynamics causes understandable irritation. There have been frequent calls for its diversification, for increasing the share of industrial products. But with the current vector of Russia’s development, which, let me say it once again, unfortunately has already been set for the coming years, the situation will not change. The pipelines, those under construction and the already laid ones, will shift this structure in favor of oil and gas. 

Simultaneously, another process, potentially more alarming from my point of view, has been unfolding recently. Russia’s regions east of the Urals and, above all, its Far East are being transformed into a raw material appendage of rising China. More than that, human and educational contacts are being re-oriented. 

While commentators have been speculating about the danger of Chinese demographic colonization of Russia’s eastern regions, far more Russians have been resettling to China than Chinese to Russia. People go there in pursuit of less costly and more comfortable life. And those who do stay have been reorienting themselves to China economically. 

From the geopolitical standpoint the situation is not dangerous yet.

Territorial expansion is not China’s historical trait. The two countries have excellent political relations. I would dare say that for the time being strong and friendly China is Russia’s geopolitical asset. The other APEC countries, especially Japan, the ASEAN countries and the U.S., fear further rapprochement between the two states and the possibility of Russia’s going semi-dependent on China, which will add a great deal to its international weight.

But if the current economic trends persist, it is very likely that Russia east of the Urals and later the whole country will turn into an appendage of China – first as a warehouse of resources, and then economically and politically. This will happen without any “aggressive” or unfriendly efforts by China, it will happen by default. 

The geopolitical implications of such developments are obvious. There will be no chances for Russia of playing the “Chinese card.” Beijing will rely on Moscow, whose real sovereignty over the eastern territories will be de facto wearing thin. 

The Chinese are already offering – quite rationally from their point of view –us projects that are similar to those they promote in some African states: the development of resources with Chinese money and Chinese labor force (which is still redundant at home); the construction of roads and local infrastructures; and the supply of ore and timber back to China for further processing. To my knowledge, some of such projects have already materialized. 

I am not over-dramatizing the possibility of Russia’s transformation into a raw material appendage, and in the future, into a political satellite of China. I feel sincere respect and admiration for its leadership and people and their ability to rebuild their great civilization after a two-century-long collapse. 
But I believe that my country, Russia, can claim, in principle, a more dignified and beneficial place in a future world order. 

But such a place has to be struggled for. For a start, one should probably give up the illusions about the possibility of “catching up and overtaking” great powers, including through re-industrialization of the country and its eastern regions. 

Nor one-sided economic orientation towards Europe will help. 

In implementing interrelated strategies of development of Siberia and the Russian Far East and in harnessing the economic locomotive of new Asia, Russia should rely not on starry-eyed dreams, but on real competitive edges. And it surely has some. 

In recent decades, the rising markets of Asia were experiencing relatively stable shortages of food. This is due primarily to the growing well-being and, as a consequence, an increase in meat consumption. Its production requires fodder and grain. This largely explains why grain prices have long been on the rise the world over. Energy and fuel prices have been rising as fast, if not faster. The region is experiencing growing shortages of fresh water and farmland. In China, the shortages have for several years pushed down the production of grain and a number of other foods. The major exporters of grain – the U.S., Canada, Australia and Ukraine – are faced with shrinking opportunities for increasing grain production. Meanwhile, Russia’s potential of building up grain output is enormous. 

China and other East Asian countries have shown rapid growth in the consumption of paper and wood products – despite earlier forecasts to the contrary. China is expanding the import of paper from around the world, even from Finland (which, I suppose, makes it also from Russian timber). Also, China is witnessing a beer consumption boom and growing shortages of recreational resources. 

In the meantime, Russia, as we must constantly tell ourselves, has 23 percent of the world’s forests, 20 percent of fresh water and nearly 10 percent of arable land. Especially great are the unused reserves in the south of Siberia and the Russian Far East. Climate change is probably improving the conditions for food production in those regions – while worsening those in the rest of Asia. 

According to our estimates, Russia could increase its arable area by 10 million hectares, and yields, 2.5 times. It is easy to calculate that this country can increase grain export several-fold. Before, limited demand was a brake on grain export. Now, China and countries in new Asia offer an almost unlimited market. 

Until just recently we have been playing with stupid projects for turning part of the water flow from the northbound rivers south. And also have told ourselves scare stories of looming conflicts over water. 

Meanwhile, our water resources are relatively easy to commercialize. But this should be done in a different way. We should sell not water, but so-called virtual water. Each kilogram of food, depending on its type, contains several dozen liters to several hundred liters of water used to produce it. The production of pulp and paper products is very water consuming, too. 
So, what is proposed? 

First, we should move faster towards the creation of a framework of security and development for the entire Pacific region – something similar to Europe’s irrelevant and quietly dying OSCE, but adequate to today’s Asian realities. China has began to understand the danger of its neighbors’ fear of its growing might, and it is about to agree to the creation of such an organization. Russia for a number of reasons will be playing in it a much more important role than the one it might count on, given its moderate economic strength.

And yet the most important thing for Russia in Asia is not politics, but creation of conditions for building up its economic potential. 

This requires a new long-term strategy for the economic revival of Russia’s Trans-Urals regions. Many strategies have been written already, but they all lacked realism and were pegged to the Soviet past and the idea of self-reliance. Quite predictably they failed even before they began to be translated into life. There was no actor that might implement such strategies – gone was the Soviet state, which had counted neither money nor the lives of its citizens, sending millions of them to labor camps and sacrificing them for the sake of tapping the region’s potential. 

A modern strategy – let us call it Project Siberia – should be internationally oriented from the outset. Roughly speaking, it should combine Russian political sovereignty with foreign capital and technologies. And not only and not just from China, but also from the U.S., Japan, the EU states, South Korea and the ASEAN countries, all of which are keenly interested to ensure there should be no exclusive dominance of China east of the Urals. 

Russia is a country with a poor investment climate and terrible corruption. If we wish to retain real sovereignty over the eastern part of the country, we will have to create special privileges for investment and special economic zones. Special economic conditions identical to those in Skolkovo should be extended to whole regions. Foreign investment is needed not only as such, but as a tool to fight Russian corruption – that is, if we really decide to fight it. Foreigners are stripped of their money less frequently; they enjoy international protection. And we will have to provide special Russian protection, if we can. 

The workforce for the new project can be found. There are still a few million surplus workers in Central Asia. It is also possible to import seasonal workers from India and Bangladesh. There is an enormous surplus of labor there. Some will have to be brought in from China, but under very strict quotas. Managers and engineers for the new companies will have to be recruited from around the globe. But the best solution of all will be to give a chance to the generation of the 1990s, thus preventing its just-started exodus. Siberia was most often a threat. Now it can become an opportunity. As it was for the Russian pioneers who trekked East and for Stolypin’s peasants. 

Now, the main thing – what is to be done, and not how. 

In some regions of Siberia and the Russian Far East, where there are the conditions (as our studies conducted at the HSE indicate – excellent ones) there should be created clusters of high-yielding agricultural production, addressed to the bottomless markets of China and East Asia – the production of grain, fodder, meat, poultry, pork and, possibly, beer. 

The policy for creating such clusters will have a multiplication effect on a number of industries of domestic engineering and will help preserve them. There will emerge demand not only for importing equipment, but also for the creation and development of the existing factories for the manufacture of agricultural machinery and plants for the production of refrigerators. We do have such opportunities. 

Very advantageous, in view of the demand in Asian markets, will be the construction of two or three additional pulp and paper mills in Siberia and the Russian Far East. 

Of course, such a strategy will require the construction of highways, bridges, railways and seaports. (There are practically no grain expert terminals in Russian eastern regions.) 

As for the infrastructure, may the Chinese build them with our money and with the use of foreign technologies. It will be far cheaper that way. And less will be stolen. 

I have heard quite a few fears from some people, including senior officials: we will create infrastructures, roads, bridges (which are ridiculously few between us and China now) – and crowds of Chinese will be flocking in. My answer is this: if we stay where we are, like a dog in the manger, the hay will rot, and the dog will run away. This is precisely what is happening now. Conditions will emerge for the loss of real sovereignty. 

Of course, Project Siberia should envisage an increase in production and the maximum processing of the resources being produced. The export of round timber to both Europe and Asia should be stopped. 

Advanced innovative production facilities should be created wherever possible – but those focused on servicing the industries where we have a competitive advantage. And this, let me say it again, applies to natural resources and potentially to agriculture, as well as the manufacturing of pulp and paper products. 

The project should be aimed at making Russian eastern regions one of the resource and food bases of rising Asia. A provider of goods with a relatively high degree of added value, and not just round timber, oil, ore or seafood as it is now.

Such a scenario would strengthen Russia’s geopolitical positions and begin to eliminate the feeling of vacuum that occurs in everyone who looks at the demographic and economic development trends in Russian eastern territories. 

Agriculture can and must be promoted and upgraded in Central Russia. This modernization is already underway inconspicuously. 

Of course, the proposed path of transforming Russia, and especially through developing its Trans-Urals regions, into a great agricultural power looks a little offending. 

What about innovation? What about a new technological system? We need to develop them wherever possible and necessary – in space technologies, in nuclear power, in aircraft building and in arms manufacturing. 

But they will not develop Siberia and the Russian Far East. They can only protect them. And not very reliably. These regions need to be developed by proper means that will really work, such as water-intensive businesses: agriculture, manufacture of paper and cardboard products, forest products, petro-chemistry, enriched ore production and just oil and gas. 

High-tech products should be manufactured there where there are still people able to make them. There are such places east of the Urals. But mostly they are concentrated in the European part of Russia. 

Project Siberia should have a European dimension, too. European companies, capital and technologies should be invited to join in. Europe should be extended to new frontiers. The frontiers Russian pioneers once reached to bring with them the European way of life. 

What makes the proposed way of development so good is that it is beneficial to all. Russia will maintain its real sovereignty over the eastern territories and create a new platform for development. China, new Asia and the whole world will get a new resource and food supply base, easing the emerging shortages. The water problem will be partially solved. The international nature of the proposed project will prevent geopolitical vacuum that would be ultimately unfavorable to China, too. The possibility of eastern Russia, and then of the whole of Russia getting into the sphere of Chinese influence only enhances the sentiment in favor of the “containment” of China. 
In short, I think this is a wonderful project. One should give thought to it, when and if we calmly go over the elections and will have an opportunity to think of the future. If we really want to.

| Rossiyskaya gazeta

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