12.07.2006
Asia’s Future and Russia’s Policy
№3 2006 July/September

The rapid rise of the giant Asian region, which is becoming the
global leader of economic growth, has only recently attracted the
close attention of analysts worldwide. For Russia the rapid
progress of its Eastern neighbors is of critical relevance. Of the
17.1 million square kilometers of Russia’s territory, Asia accounts
for almost 14 million. It is east of the Urals that the bulk of
Russia’s natural wealth is located, and it is thanks to this that
Russia now holds a special place in the world economy. Moreover,
Russia can serve as a natural bridge between the markets of Europe
and Asia, as it has a unique transport and transit potential.
Full-scale implementation of this potential and protection from
strategic rivals will boost Russia’s development.

Russia plays an active role in economic relations among the
Asia-Pacific countries. Over the last three years, the percentage
of 11 countries of the Asia-Pacific Region (China, North Korea,
South Korea, Japan, Taiwan, Hong Kong, Singapore, Thailand,
Mongolia, Vietnam and India) in Russia’s foreign trade has
increased to 13.4 percent (compared with 4.3 percent of the United
States, Australia and Oceania). Over the next 10 to 15 years,
Russia’s six major trading partners in East Asia (China, North
Korea, South Korea, Japan, Taiwan, and Hong Kong) alone will
account for 20 percent of Russia’s foreign trade, while the whole
of the Asia-Pacific Region will account for about 30 percent. It
should be noted that Russia’s exports to East Asia are much more
balanced in structure than its exports to the European Union
countries, although the former are less in volume.

GROWING ECONOMY

The upsurge in interest in Asia is primarily due to the rapid
economic growth rates in a majority of Asian countries and to
China’s soaring geopolitical influence.

Rising Asia demonstrates stable economic growth, which ranges
from 8.5 percent in 2005 in China (9.25 percent in 2004) to 7.5
percent in India (2004-2005) to 7.7-8.4 percent in Vietnam
(2004-2005). In the medium term (15 to 20 years), the annual growth
rates in China and India are expected to stand at 7-8 to 6-7
percent, respectively. Even if China’s growth rates increase
insignificantly, the country’s contribution to the world’s gross
domestic product will reach 10 percent by 2020-2025. This factor
will place China among the world’s top three economic leaders,
along with the U.S. and the European Union.
During the next 10 to 15 years, China will continue to lead
economic development in the region, followed by Japan and India,
and will retain its status of a “world factory,” while dominating
sectors of the manufacturing industry. Meanwhile, India has a
chance to excel China in textile production, car making, and in the
amount of foreign investment attracted.

Most of the Asia-Pacific countries are facing problems and
challenges that can slow down their development. Beijing, for
example, is faced with the following pressing problems:

– an aging population;
– slow rates of urbanization;
– backwardness of the rural areas;
– underdevelopment of the services sector;
– insufficient spending on the educational system;
– inefficiency of the banking system;
– archaic corporate governance system and underdeveloped financial
markets.

The demographic window of opportunity, that is, the significant
manpower resources that created the prerequisites for a major
economic breakthrough, is already closing in China (and will soon
close in other Southeast Asian countries, as well). Beijing’s “one
family, one child” policy may have unforeseen consequences in the
future. In 15 to 20 years, the number of dependants will continue
to grow, thus multiplying the social burden on able-bodied
citizens.
China’s political transformation plays a dual role in the country.
On the one hand, democratization of the political regime is one of
the preconditions for switching over to a new development model,
overcoming corruption, retaining positions in the global economy,
and ensuring further growth. On the other hand, the political and
social stability ensured by the regime is one of the main
competitive advantages that China has in attracting foreign
investment. China could become less attractive to Western investors
due to the aggravation of social conflicts and the further regress
of rural areas brought about by greater democratization.

It is highly improbable, however, that the democratic process
will arrive like an avalanche. The ruling party is taking great
effort to ensure the continuity of power after Hu Jintao leaves his
post of General Secretary of the Central Committee of the Chinese
Communist Party in 2012. Most likely, China will introduce gradual
liberalization into the party, while bringing some democracy into
the electoral system at the local level, and developing a limited
number of nongovernmental organizations.

India, the most populous democracy in the world, is not facing
the problem of a political transformation. Yet the country will
have to find answers to serious challenges facing its economy.
These include, most importantly, the slow development of
infrastructure – railroads, highways and ports – that is impeding
the process of industrialization. Another challenge is India’s
insufficient involvement in globalization (various sources estimate
India’s share in global trade at not more than one percent).
Although some Indian regions (Bangalore, Goa) are part of the
global market, the larger part of India is extremely backward.

Both China and India are facing very difficult environmental
problems, and there are no signs yet that they are going to be
solved in the near future. India’s further industrialization will
most likely aggravate its environmental problems, as is the case
with China. Presently, China’s advantages are a higher literacy
level, a lower child mortality rate, and a much lower number of
people living below the poverty line. Meanwhile, India has a better
developed services sector than China.

CHANCES FOR ECONOMIC INTEGRATION

Stable economic growth in the majority of countries in the
region encourages them to look for forms of association. However,
essential differences between their economic, political and
military potentials stand in the way of a successful Asian
integration. Unlike European integration, initiated in the second
half of the 1950s by countries that were more or less equal in
terms of their development levels (Germany, France, Italy, Belgium,
the Netherlands, and Luxembourg), consolidation in Asia can be
built only by uniting the less developed countries around a single
large and strong partner. This could take the shape of the North
American model (the North American Free Trade Agreement, or NAFTA),
where the United States is the predominant actor.
In the medium term, major countries of the Asia-Pacific Region –
China, India, the U.S., Japan and South Korea – will not be ready
for an alliance or integration. Yet they may develop a kind of soft
integration around a big player, most likely China, which is
winning the sympathies of “small friends” from among member
countries of the Association of Southeast Asian Nations (ASEAN).
Beijing provides its neighbors with grants and trading preferences
and sells them military equipment at reduced prices (the
‘benevolent elephant’ strategy). Thus, the framework of a future
integration union is being formed around China.

As for India and Japan, the former is unable to play the role of
an integration center due to its economic and political conditions,
while the latter views the United States as its main partner; in
the future, Japan and the U.S. may establish a bilateral free-trade
zone. Existing regional associations, such as the Asia-Pacific
Economic Cooperation (APEC), rather serve as mechanisms for working
out common values and objectives than as platforms for creating
practical tools of integration.

In seven to ten years, deepening economic relations, combined
with the interdependence of countries in the region, may prompt
them to conclude formal free-trade agreements. However, their
interaction will proceed at different levels and rates, as well as
with a different degree of institutionalization. More probable are
integration processes in those areas that are related to
information technologies, the knowledge economy, and where national
barriers are much lower. At the same time, the establishment of
free-trade zones, especially where traditional industries (e.g.,
agriculture) are involved, will require a lengthy negotiating
process.

There is very little chance that regional countries will
establish political or military-political unions. Although recent
developments (above all, the position of the Shanghai Cooperation
Organization concerning the U.S. military presence in Central Asia)
add a military-political dimension to this organization, the
probability of formalizing military-political commitments within
the SCO frameworks is insignificant at this time.

POLITICAL INSTABILITY

The main obstacle standing in the way of political and even
economic consolidation in the region is the growing rivalry between
Beijing and Washington. Deliberately or not, China is the main
“disturber of the peace” here, as it has been increasingly active
in pushing aside the traditional leaders – the United States and
Japan. Some analysts hold that China views the “small” countries,
that is, member states of the Association of Southeast Asian
Nations, as a natural continuation of its economy and is therefore
actively developing cooperation with them.

Other countries in the region are rather objects of the policies
of the two competing giants. The only exception is Russia, whose
favor both China and the U.S. seek.

China has not yet clearly formulated its foreign-policy
ambitions. Beijing firmly insists that Taiwan reunites with the
People’s Republic of China, but makes unclear and ambiguous
statements on other issues. This factor prevents China’s partners
from taking a clear stand with Beijing. Russia, the U.S. and other
member states of the Group of Eight and NATO do not always
understand China’s intentions when it speaks of the development of
a “strategic dialog.” Beijing often behaves inconsistently: on the
one hand, it is aggressively buying liquidities in the United
States, while on the other hand, it displays caution, if not utter
diffidence, in implementing its political initiatives (for example,
in increasing its role in the Shanghai Cooperation Organization or
military-political presence in Central Asia).

The sheer size of China’s economic relations abroad protects its
leadership from outright confrontation in the realm of foreign
policy. At the same time, China needs to build up its military
might and nuclear potential to enhance its authority at the
regional and global levels. However, China’s neighbors may view its
military buildup as a threat.

Russia and Japan rank second and third, respectively, among
China’s foreign-policy priorities. Meanwhile, Chinese public
opinion has an increasingly favorable view of Russia. Part of the
reason is that new bilateral energy projects help to consolidate
ties between the two countries. In the long term, Beijing’s Russia
policy is expected to be friendly, stemming from the need to keep
“peace in the North.”

As for Chinese-American relations, China’s policy of reforms,
conducted since the late 1970s, was intended to achieve at least a
retreat from confrontation between the two countries, if not a full
rapprochement with the U.S. Presently, China continues to conduct a
cautious policy toward the United States, trying to avoid any
conflict, even despite Washington’s unfriendly moves. The
difference between the two countries’ political systems is largely
compensated for by their increasing economic interdependence,
although the latter factor has its limitations.

According to public opinion polls, the U.S. is the most
unpopular country among 54 percent of the Chinese. There are fears
that this antagonism will keep growing as more rations of democracy
are given to the Chinese population and as its economy gets
stronger.

Meanwhile, Washington pursues a much more aggressive policy that
is intended to “restrain” China. To this end, the United States
resorts to various kinds of means, including the escalation of its
military presence in East Asia and the threat of deploying an ABM
system (which seems to be largely a bluff).
Another reason for the deterioration in relations between
Washington and Beijing is the growing conflict between China and
Japan. However, the great economic interdependence between China
and Japan (between 1993 and 2004, Japan was China’s largest foreign
trade partner, and now ranks third after the European Union and the
U.S.) causes these two nations to search for other cooperation
options. At the same time, their rivalry for access to new energy
sources, for leadership in the ASEAN space, and for a place on the
international scene is becoming increasingly keen. For example,
China actively opposes Japan’s permanent membership on the UN
Security Council, while the situation concerning Taiwan remains
explosive; although the probability of an armed conflict is now
estimated to be relatively low.

In the medium and long term (until 2020-2025), relations between
the United States and China will, most likely, tend to deteriorate,
and the deterioration will be initiated by Washington – regardless
of what party wins presidential elections in the U.S.

Meanwhile, relations between Beijing and New Delhi have been
gradually improving, yet still retaining elements of tensions.
China opposed India’s participation in the latest East Asian summit
(December 2005), while the border dispute still presents a problem.
Nevertheless, there is an economic rapprochement between the two
countries, and there are signs of a beginning political dialog.

The past few years have witnessed a new tendency in the
Asia-Pacific countries – the growth of nationalism, which manifests
itself at both the regional level and against the West. These
sentiments are rather caused by deliberate actions of the
authorities and do not represent a spontaneous manifestation of
sentiments. However, active economic ties and growing bilateral and
multilateral exchanges reduce the probability of establishing
nationalism as the basis of state policy.

CONTOURS OF RUSSIAN POLICY

Compared to the Russian-European relationship, which is made up
of a strategic partnership, regular summit meetings, efforts to
create four common spaces, and numerous dialogs, the Asian vector
of Russia’s policy remains insufficiently developed. Factors
preventing this development include lack of political will, the
traditional Eurocentrism of the Russian establishment, and the
existing routes for selling the most profitable goods and
commodities. Russia’s Asian policy lacks vitality, state support
for the development of economic ties, and involvement in regional
cooperation mechanisms and regional security organizations (except
the Shanghai Cooperation Organization).

Any partial reorientation of Russia’s policy toward Asia should
not be overly publicized, since loud declarations may only arouse
suspicion and irritation among Russia’s traditional partners in
Europe and the U.S., and even in a majority of the Asia-Pacific
countries. However, Russia should form a multidimensional and
multifactor policy. Considering the difficult relations among the
leading countries of the region – China, India, Japan, South Korea
and the U.S. – Russia should not orient itself to just one or two
countries, since each of them may view the Russian Federation as a
counterbalance to other countries. In working out its policy,
Russia must take into account those factors that are causing
concern among all partners.

Finally, Russia’s political and economic relations with Asian
countries must not come into conflict with Europe, the main vector
of Russia’s development and identity. The main objective of
Russia’s Asian policy must be the development of Russia’s eastern
regions.

The balanced and cautious participation of Siberia and Russia’s
Far East in regional economic integration can play a major role.
The Russian Far East already participates in integration processes
oriented to China, while the Asia-Pacific countries account for 85
percent of all foreign trade of the Russian Far East, and the
latter’s economic relations with neighboring countries are much
more intensive as compared with the European region of Russia.
Meanwhile, there are potential dangers associated with the full
reorientation of the Asian part of the Russian Federation to
regional economic entities, especially in the form of Chinese
economic expansion into Russian territory. This threat is not
related to any “aggressive plans,” but rather to the insufficient
economic and social development of Russia’s Asian regions. In light
of this situation, special importance is attached to a new project,
Opening Up Siberia Anew, which is intended to boost the social and
economic development in the region.

Russia must seek to increase its foreign trade while improving
its quality at the same time. The percentage of the Asia-Pacific
region in Russia’s foreign trade can be increased to 33-35 percent,
which would make it comparable with the European Union. In the
medium term, this can be achieved by broadening energy cooperation.
The majority of Asia-Pacific countries badly need new energy
sources and view Russia as a potentially reliable partner.
In this area, emphasis must be placed on the diversification of
transport routes of Russian energy resources to regional consumers.
This is particularly important as China, India and Japan build
their defense policies on the possibility that energy supplies from
sea routes will be blocked in case of an interstate conflict.
Russia and the Asian countries could cooperate in building
continental pipelines and developing sea infrastructures that are
oriented to tanker oil export and liquefied gas transportation.

Russia should seek to expand its “intellectual export” to Asian
countries that are oriented to the United States and Western Europe
in promising areas, such as education. The efficient investment of
revenues from energy exports could help Russia consolidate its
positions in personnel training for Asia-Pacific countries, thus
facilitating its emergence as a new “intellectual donor” for the
region.

It would be expedient to devise a set of measures to support
technologically oriented exports to Asia, especially those that do
not sell well in Europe and North America. This refers, above all,
to products of civil mechanical engineering and power
machine-building, developed long ago in the Soviet period. Russian
aircraft companies could increase sales of civil aircraft and
engines, if the government provides the essential lobby support.
Also, the government should support the establishment of aircraft
maintenance centers for Russian airlines.

Military-technical cooperation is one of the most promising, yet
at the same time most difficult, areas. Although this kind of
cooperation between Russia and China remains the source of many
complaints from Russia’s partners in the West, it not only brings
material benefits, but is also a factor in helping to maintain the
regional balance of forces. Russia should gradually proceed to a
higher level of military-technical cooperation with such countries
as India and China, which would involve more advanced high
technologies. Both countries have made much progress in modernizing
their military-industrial complexes and are now more interested in
purchasing technologies than finished products.

Russia must also change the structure and quality of its imports
from East and Southeast Asian countries, including China, while
increasing its exports to that region. Presently, Russian imports
from the majority of Southeast Asian countries comprise
medium-quality goods, although these countries can sell
better-quality products and at prices more acceptable to Russian
consumers.

Countries of the Asia-Pacific region are rather apprehensive
about Russia’s possible appearance on the regional market. Russia
is traditionally viewed there as a European country and evokes
interest as a source of vital energy resources and as an element of
military and political balance in relations between China and the
United States, between Japan and China, and between the majority of
local countries and the U.S. Therefore, gaining a foothold on the
regional market will require consolidating Russia’s political
positions. This can be achieved by implementing formal and informal
mechanisms of coordination in the Asia-Pacific countries,
specifically by using local international organizations and forums
(the Asia-Pacific Economic Cooperation, ASEAN, the Shanghai
Cooperation Organization, and the six-partite negotiations on North
Korea).

Russia would be wise to advance its political initiatives
through the Shanghai Cooperation Organization where, some analysts
fear, China may monopolize leadership. At the same time, it would
be counterproductive to use the SCO for “checking” China. Instead,
Russian representatives must take an active part in round-table
conferences and other discussions that precede major interstate
meetings. These activities, as well as intellectual support for the
development of regional policy (preparation of scientific studies
by specialized expert centers, and participation in international
scientific conferences), require special state support.

The formation of Russia’s new policy toward the Asia-Pacific
countries is impossible without transforming its foreign-policy
thinking, which has been traditionally focused on the Euro-Atlantic
space. Despite its long economic and political cooperation with
China and India, Russia still views itself as an outside force in
the Asia-Pacific region. Russia must stop viewing Asia as something
alien. At the same time, however, Russia’s renunciation of its
orientation to Europe would mean the renunciation of its genetic
and cultural roots, not to mention its hopes for democratic
modernization. Besides, through its contacts with Asian countries,
Russia can take avail of its “Europeanness” by acting as an
intermediary between the East and the West and representing the
interests of all parties.

Russia must step up contacts with the elites of the Asia-Pacific
countries and pool efforts with them in organizing joint forums,
conferences and other political and scientific events. Steps
already taken in this field, such as the participation of a Russian
delegation in sessions of the Asia-Pacific Parliamentary Forum, can
be viewed as a highly positive, although insufficient,
experience.

Equally important is the development of people-to-people
contacts. There are good prerequisites for such a relationship: the
traditionally strong relations between Russia and Asia-Pacific
countries, the absence of bias against Moscow, which exists in some
countries of Central and Eastern Europe, and the fact that a large
part of the Asia-Pacific elites received their education in the
Soviet Union and Russia. Organizations of civil society can play an
important role in this field, while the government could lend its
support for such projects.

The discussion involved Yakov Berger, Senior Research Fellow
of the Institute of Far Eastern Studies, Russian Academy of
Sciences; Alexei Bogaturov, Dean of the Political Science
Department, Moscow State Institute of International Relations;
Alexander Lomanov, Leading Researcher of the Institute of Far
Eastern Studies, Russian Academy of Sciences; Vassily Mikheyev,
Corresponding Member of the Russian Academy of Sciences; Vladimir
Portyakov, Deputy Director of the Institute of Far Eastern Studies,
Russian Academy of Sciences; Alexander Lukin, Associate Professor
of the Comparative Political Science Department, Moscow State
Institute of International Relations; Victor Pavlyatenko, Head of
the Center for Japanese Studies of the Institute of Far Eastern
Studies, Russian Academy of Sciences; Gennady Chufrin, Deputy
Director of the Institute of the International Economy and
International Relations, Russian Academy of Sciences; Sergei
Karaganov, Chairman of the Presidium of the Council on Foreign and
Defense Policy, host of the situation analysis, and head of the
scenario group; Fyodor Lukyanov, Editor-in-Chief of Russia in
Global Affairs; Timofei Bordachev, Research Director of the Council
on Foreign and Defense Policy; Dmitry Suslov, Deputy Research
Director of the Council on Foreign and Defense Policy.

The discussion was followed up by the 14th Assembly of the
Council on Foreign and Defense Policy, held in March 2006.

The author expresses his gratitude to the participants in
the discussions, whose comments added to the analysis.