Archive for the ‘China Economic Quarterly’ Category

Things are slowing down a bit now in the wake of the Paris atrocity, though unfortunately am sad to say the story is likely to not go away. Still some interest around the topic though, and spoke to the Sunday Times about the noisy Sally Jones, to the Huffington Post about how ISIS compares to historical threats, as well as the South China Morning Post about China’s view on the downing of the Russian plane and the Straits Times about what China might do to contribute to the anti-ISIS coalition. More on all of this am sure as ever. In the meantime, a new piece which was acually published prior to the Paris atrocity about China-Russia relations globally for the China Economic Quarterly. Huge thanks to the editors for their patience and invitation to do this. Greatly appreciated and definitely a subject that will be returned to.

China And Russia: Locked In Reluctant Embrace

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The dynamic of the Sino-Russian relationship is one that has long perplexed Western decision makers and thinkers. At a geopolitical level they appear in lockstep in an anti-western front, but below the surface they seem willing to engage with the west against each other’s interests while also sharing some fundamental disagreements. The reality is that Moscow and Beijing have a sophisticated modus vivendi that both allows for a clear disparity in the relationship in Beijing’s favor, while at the same time retaining an equal sense of importance of the broader strategic relationship. The overriding priority for both remains to ensure that they have an ally against the West and as long as this need remains the axis of authoritarianism will persist.

The archetypal space to explore this complex divergence is Central Asia. On the one hand it is a region where China has gradually increased its footprint to become the most consequential actor on the ground, while on the other it remains linked inextricably to Russia through multilateral vehicles and long-standing ties. And while in other parts of Eastern Europe or the Caucasus Russia has reacted negatively to encroaching external influences with armed conflict (like Georgia or Ukraine), in Central Asia the slow creep of Beijing’s influence has happened largely with Moscow’s acquiescence, though not without some counter-reaction.

China’s interest in Central Asia stems from a desire to improve the economic situation in Xinjiang. Seeing economic development as the answer to ethnic tensions between Han and Uighur in the region, Beijing has embarked on numerous large-scale economic projects to develop the western region of Xinjiang. However, for effective economic development to take place in Xinjiang there is a need for the region to have greater connectivity outwards. A fivehour flight from Beijing, Urumqi is as landlocked as the Central Asian countries it is near, and for it to prosper adequately, it needs to develop routes and roads into the region and ultimately to European markets. Consequently, as Beijing has poured money into the region, there has been an ancillary push into Central Asia with policy banks, state owned enterprises and private citizens all seeing the opportunity and need that lies in developing routes and markets into the Russian space.

Chinese cash displaces Russia in Central Asia…

The consequence of this has been a steady growth of economic influence across the region as Chinese capital and companies move into the region to repave, rebuild and open up Central Asian markets while also taking advantage of the region’s natural wealth to feed the Chinese economic machine. Previously a region largely the domain of Russian extractives firms, and, in the post-Cold War period, large Western players, Central Asia has seen CNPC and other Chinese energy firms moved in to stake claims. But significantly, Chinese firms have not stopped at only extracting energy, with firms showing up re-metering national gas infrastructure, re-developing solar furnaces, and building new power plants, refineries, and transmission lines across the region. The most rapid global pipeline growth of the past decade can be seen in the region, as Chinese firms plan, fund and built in quick succession a series of pipelines bringing hydrocarbons back to China from Turkmenistan, Kazakhstan and Uzbekistan.

All of this has largely been done to the detriment of Russian firms, who retain key stakes in most regional energy efforts but find themselves unable to compete with China’s easy funding and rapid construction. The American evacuation of the Manas airbase is a case in point. Initially awarded to a Russian firm linked to Rosneft, the company had to withdraw due to lack of funding, leaving a Chinese firm to step in and take over the contract. In Turkmenistan, a longstanding animosity between Moscow and Ashgabat culminated with the main pipeline to Russia blowing up and not being rebuilt. Instead, Chinese pipelines appeared and China is now the nation’s key partner—so much so that Turkmenistan might question the wisdom of its almost complete dependence on China.

…but Russian weapons are still welcome

Despite China’s economic incursions, Russia remains the most credible security provider. Untested by conflict outside its borders, China’s military is still a relatively timid force that is wary of launching direct confrontations or placing themselves in situations that would lead to such conflict. Whenever there is security trouble in the region, the powers look more to Russia to provide them with support – in particular in the more unstable nations of Kyrgyzstan and Tajikistan, both of whom have looked to Russia to help provide some stability in the wake of interethnic violence (Kyrgyzstan) and to strengthen their border with Afghanistan (Tajikistan).

Moscow has also made better use of regional organizations than has Beijing. The Shanghai Cooperation Organization (SCO), sponsored jointly by China and Russia, is in the most externally observed, but least effective regional multilateral vehicle. The Moscow-driven Common Security Treaty Organization (CSTO), Commonwealth of Independent States (CIS) and Eurasian Economic Union (EEU) are all more active in changing the context on the ground. The EEU in particular is seen as an attempt to recreate the Soviet space and is driven by Moscow as a specific attempt to reclaim the economic dominance and influence it used to hold. Encompassing Russia, Kazakhstan and Belarus, with Armenia and Kyrgyzstan the latest joiners, the EEU gives Moscow the power to dictate border tariffs and standards across the entire region.

In Central Asia the EEU is seen as direct push-back to Beijing’s growing influence. Yet the reality is that the EEU can do little to stem the rising influence of Chinese cash. And for Beijing’s traders keen to take advantage of Xi Jinping’s vision to create a New Silk Road Economic Belt through the region to European markets, the existence of a single tariff zone from Kazakhstan to Belarus will save them money and time in getting goods from China to Europe. Direct trade with Central Asia may be down, but, as traders in Kyrgyz markets at Kara Suu and outside Bishkek pointed out during a visit in early 2015, these markets had been shrinking for years due to closed local borders and weakening local economies. The addition of a failing Russian economy only further softened local currencies and further reduced remittances from Central Asian laborers in Russia, which in the case of Tajikistan or Kyrgyzstan account for almost a third of GDP.

On the whole, Beijing policymakers seem to view the EEU as complementary to their Belt-and-Road strategy; and even if they did not, they have reason to be skeptical of the EEU’s longevity. Belarus and Kazakhstan have already blocked some trade across their borders, and it remains unclear how Kyrgyzstan is going to be able to effectively integrate and thrive in an economic union where it has few advantages.

China has the upper hand in bilateral affairs

All of this takes place against a backdrop of a failing Russian economy that is increasingly looking to Beijing for growth. Whilst previously resistant to letting Chinese firms invest in upstream energy assets, Moscow allowed the Chinese Silk Road Fund to invest in the Yamal gas field. In a sharp turnaround from previous paranoia of Chinese expansion into Russia’s east, Moscow has actively encouraged cross-border trade between Heilongjiang and the Amur region, with the governor of the region going so far as to say that he would welcome Chinese workers coming into the region to help repopulate it. The Russian press is increasingly full of stories of actively encouraging trade across the border, something that stands in stark contrast to speeches by President Putin in 2000 about losing Russia’s East to Asia.

In all this investment, China clearly retains the upper hand. The Power of Siberia pipeline remains a project largely on paper as CNPC lobbies aggressively to get the deal finalized on its terms. And although the large gas deal signed between Russia and China was supposedly resolved earlier in the year after almost 15 years of haggling, the reality is that the agreement was largely cosmetic. It came at a moment when President Putin wanted to be able to show the world that he had strong allies in the face of a growing animosity between Moscow and the west over Ukraine. Within hours of the deal being signed, stories surfaced of re-negotiations taking place and a continuing lack of agreement over the pricing structure of the deal.

At a geostrategic level there are further tensions between the two great powers. Vietnam is a long-time client state to Russia that depends on Moscow for military equipment, including naval assets that Vietnam feels it needs to bolster its claims to islands in the South China sea that it disputes with China. India is another long-term Russian ally that has border disputes with China and a long-standing inferiority complex to its neighboring Asian giant.

It is also clear—despite its lack of public criticism—that China is displeased by Russia’s adventures in Ukraine and Georgia, as it worried about the precedent of annexing parts of neighboring countries and recognizing break-away provinces. Nor is it enthusiastic about Russian intervention in Syria where it seems unlikely that more combatants on the field will resolve the situation. As a status quo power that sees the future as firmly within its grasp under the current world order, Beijing disapproves of Russia’s efforts to undermine current structures.

The SCO was supposed to be a vehicle for joint maneuver in Central Asia, but has bogged down in disagreements. Beijing’s interest in having it focus more on economic issues has been blocked by Moscow. And in turn Moscow has promoted a rapid expansion of the group, against China’s wishes. Unwilling to directly confront and exclude others, China has found itself forced to bow to external pressure in letting the organization expand against its better judgment.

Authoritarian birds flock together

Notwithstanding these tensions, the two powers retain a tactical geopolitical alignment. Partially this is for the purpose of mutual support in the UN Security Council. As two of the permanent five members, knowing that they will consistently support each other (by either veto or abstention), means that they need never feel isolated in the body.

Shared political insecurity also draws them together. Both governments are equally paranoid about the overthrow of authoritarian regimes. Both speak equally acerbically about the negative influence of democracy and the wave of color revolutions that swept through the former Soviet space in the mid-2000s and the subsequent ‘Arab Spring.’ Watching as chaos came in the wake of the civilian overthrow of regimes from Georgia, Ukraine, Kyrgyzstan and then later Tunisia, Egypt, Libya and Syria, both ascribe these incidents to a missionary foreign policy advocated by western capitals. Fearing that ultimately this wave of civilian insurrection ends up with regime overthrow in Beijing and Moscow, both see each other as fundamental allies in a world divided between western democratic zealots riven with uncertainty and stable one-party states ruled by strongmen and parties.

These underlying geopolitical realities outline why this axis of authoritarianism continues to function as a genuine alliance of sorts despite fundamental differences and an ever-growing imbalance in power between the two. Russia may increasingly be selling itself to China in a manner that will become irreversible, but it is doing this to a power that it fundamentally sees itself locked in step with. It was President Putin who first enunciated in 2000 the fear that Russia would lose its east to Asian influences, but it is also President Putin under whose reign China has become the Russia’s biggest geopolitical friend.

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