Relations between China
and Russia became noticeably closer in the past year and, if the numerous
agreements they have appended their signatures to come to fruition, they are
apt to become still closer in 2016.
Perhaps
most startling has been the resumption of Russian arms sales to the PRC.
Robust sales that began after the
demise of the Soviet Union and continued for fifteen years dropped sharply
after 2006, with a major factor being Moscow’s annoyance at the Chinese penchant
for copying Russian designs and selling the items to third countries at lower
prices that undercut Russia’s. There were as well concerns within the
Russian military about selling China weapons that could someday be used against
them.
Whether because these misgivings had
abated or, more likely, because of desperation in Moscow due to
deteriorating economic conditions, sales resumed in 2015 as abruptly as they
had been reduced nearly a decade before. In the spring, Russian President
Vladimir Putin approved in principle the sale of S-400 air defense systems to
China, making it the first foreign customer to acquire the S-400. Once
deployed, it will provide a significant upgrade for the PRC’s integrated air
defense system. The deal will reportedly cost US$ 3 billion.[1]
In November, the two concluded a $ 2 billion deal for the purchase of 24 Su-35
fighter planes.[2] A number of smaller agreements involving
joint work in defense projects and in dual-use technologies have also been
reached. Russia’s Kaspersky Labs has agreed to cooperate with the
state-owned China Cyber Security Company for defense against an unnamed state
actor which had mounted sophisticated attacks against both countries.[3]
Trade and Investment
In December, the two countries’
central banks signed a memorandum of understanding to expand cooperation to
promote local currency settlements, bank card issuance, access to local
currency bond markets, and credit-rating partnerships.[4]
Almost simultaneously, the Russian Direct Investment Fund (RDIF),
Vnesheconombank (VEB), and the China-Eurasia Economic Fund (CEECF) announced
the creation of a structure to finance Chinese exports to Russia and guide the
flow of Chinese investment into projects in the Russian Far East and
Trans-Baikal areas. Major foci were to be the transportation infrastructure and
power generation sectors.[5] VEB was said to be mulling
yuan-denominated bond offerings in China on the Moscow Exchange.[6]
China’s Silk Road Fund agreed to provide 730 million euros (about $778 million)
over a 15-year period for the Yamal liquid natural gas project.[7]
Russian agribusiness exports to China for the first eleven months of the year
increased by over 14 percent, to $1.2 billion and Chinese Premier Li Keqiang
and Russian Prime Minister Dmitry Medvedev announced their intention to
increase total bilateral trade to $200 billion by 2020.[8]
Regional and International
Initiatives
At a meeting of the prime ministers
of the Shanghai Cooperation Organization, Premier Li announced six platforms
for regional development: security, production capacity, connectivity,
financial cooperation, regional trade cooperation, and cooperation to improve
the lives of the people of the SCO’s six members and their dialogue partners.[9]
Li and Medvedev also released a statement vowing to play a “constructive role”
in the resolution of Iran’s nuclear issue.[10] Despite the
PRC’s long-standing opposition to economic sanctions against countries, China’s
largely still state-controlled press reported without comment on Russia’s
decision to impose food embargoes on Ukraine in retaliation for Kyiv’s
participation in a free-trade agreement with the European Union.[11]
Moscow has supported Beijing’s position on the numerous disputed territories in
the East and South China seas; Beijing has in turn supported Moscow on the
Kurils, which the USSR took from Japanese control after World War II. Tokyo’s
insistence that they be returned has thus far precluded the two signing a peace
treaty formally ending the war. Some analysts believe that there is a tacit
understanding between Putin and Xi Jinping that China will give Russia a free
hand in Eastern Europe in return for Russia’s understanding of Chinese
hegemony in Asia.
People-to-People Dialogue
2015 had been designated the
China-Russia Youth Friendly Exchange Year; 2016 is to be the China-Russia Media
Exchange Year. At the closing ceremony for the former, Premier Li
declared that this was not to be regarded as an ending but as a new starting
point for Sino-Russian friendship. Speeches emphasized the importance of
creating bonds between youth as a basis for long-term cordial relations between
the two countries. As for the year to come, a micro-film series called “Hello
China”[12] had already been seen by over a hundred million people,
“fully demonstrating the common aspiration of the two peoples for communication
and exchanges and for sharing their respective experience.”[13]
Limitations on the
Partnership
Sharing common authoritarian values
and a common adversary in the United States, the PRC and Russia can be expected
to continue to cooperate in the near term on what Chinese media describe as
mutual benefit. Yet there are concerns that, while the cooperation may be
mutually beneficial, the benefits are far from equally distributed, leading to
friction between them. And, although Xi Jinping does not challenge
Russia’s moves in Ukraine nor Putin criticize China’s assertive behavior in the
East China and South China seas, neither wants to become enmeshed in the
foreign policy problems of the other. Note that, for all the talk of
solidarity, the two continue to eschew the word alliance, preferring instead
the more limited term “strategic partnership.”
Russian concerns over reverse
engineering of the weapons sold to China continue, amid suspicions that
the reason only 24 Su-35s were purchased is that the PRC intends to capture the
plane’s embedded technologies such as thrust vectoring, passive
electronically scanned array radar and infrared search-and-track system.[14]
Defense officials have complained that cheaper copies of Russian designs,
sometimes stolen or acquired through third parties such as Ukraine, are
cutting into its sales. As summarized by Russian-American analyst Nikolas
Gvosdev, Russia’s choices, both unpalatable, are either to sit back
and take the hit, or sell even more advanced weaponry to the Chinese to make up
for the sales shortfall, risking that they will copy those designs as well and
export them.[15]
Beijing in turn is concerned that
Russia sells arms not only to China but to two countries with whom it has
ongoing territorial and other disputes: India and Vietnam. Russia has
been the major supplier of equipment, including fighter planes and battle
tanks, to the Indian military; Vietnam, locked in a bitter dispute with China
over the Spratly and Paracel island groups, will soon take delivery of its
fifth Kilo-class submarine. China has also invested in Ukraine, now
the largest exporter of corn to the PRC. In March, Beijing lent Kyiv $15
billion for housing construction, and in July agreed to facilitate the
expansion of Ukraine’s information technology sector.[16] These and
other projects increase China’s stake in an independent Ukraine as well as
strengthening Kyiv’s ability to counter the effects of Russian sanctions.
The Silk Road and its financial
underpinning is another cause for concern. Moscow’s resistance to
Beijing’s attempts to create an infrastructure development bank under the
Shanghai Cooperation Organization is thought to have been a factor in the
Chinese decision to found the more broadly-based Asian Infrastructure
Investment Bank (AIIB). Russia was not among the nearly two dozen countries
participating in the initial launch of the bank in October 2014, applying to
join only in April 2015. Even thereafter, Prime Minister Medvedev expressed his
explicit opposition to the creation of alternative trade platforms to the World
Trade Organization.[17] According to a Russian analyst, the
leadership believes that “it’s a project to steal Central Asia from us, they
want to exploit our economic difficulties [so as] to be really present in the
region.”[18]
The two nations also compete with
each other in outer space as well as at the ends of the earth. As 2015
ended, Moscow’s Interfax proudly proclaimed that Russia remained the world’s
leader in the number of space launches carried out in the past year: 26 versus
20 for the U.S. and 18 for the PRC. [19] China, which describes
itself as a “near-Arctic state,” has been admitted as a dialogue partner to the
Arctic Council, claiming its right to shipping lanes in the area. Russia
has sent troops to its Arctic base and asserted its intention to prepare
against “terrorism.”[20] In the Antarctic, Russia built
an Orthodox church near its research base complete with a priest who conducts
services for the staff. Nearby is a classic Russian banya, i.e. sauna,
that is supplied with imported birch switches. The logs for the church were
brought from Siberia. Satellites beam Russian programs to flat screen
televisions. Not to be outdone, the Chinese government has upgraded its
Great Wall Station, including an indoor badminton court and living accommodations
for 150 personnel.[21]
China’s need to import energy
notwithstanding, the oil and gas deals have encountered problems. Russian
sources argued that state-backed Gazprom had waited too long to implement a “go
east” policy to build a gas pipeline to China: Central Asian countries had
already built three pipelines and embarked on construction of a fourth.
Only the company’s executives would profit if Gazprom persisted in its plans.[22]
Further compounding Gazprom’s problems, the large Chinese commercial banks that
were to have provided a substantial portion of the funding for the pipelines
have become hesitant to do so. Many of the Russian companies involved in
construction of the pipeline are on the U.S. sanctions list, meaning that any
Chinese bank doing business with them could be barred from conducting business
in the United States.[23]
The Future
Whether these cracks in public
solidarity will become fissures depends on a number of factors. For one,
it is conceivable that the U.S. will find common cause with Russia. The
Obama administration’s 2009 effort at what it called a reset failed due to
Washington’s resistance to Putin’s annexation of the Crimea, pressure on the
Ukrainian government, and support of the Assad government in Syria.[24]
But were a new administration to accept Russia’s fait accompli in Crimea and
agree to cooperate against the Islamic State in Syria while Putin ceased
backing subversive activities in Ukraine, an important pillar of support for
the Sino-Russian strategic partnership would be removed. Many Russians feel
that their country has more to gain from a closer relationship with the West
than with China. Chinese analysts appear to be watching this possibility
carefully: taking note of U.S. Secretary of State John Kerry’s two trips
to Moscow, a commentator in Global Times opined that the United States
would “have” to end its isolation of Russia.[25]
Another problem that could
conceivably be solved involves the 70-year old dispute between Japan and Russia
over the Kurils. Prime Minister Abe Shinzō has made resolution of the issue a
major part of his political agenda, considering it a filial obligation to carry
on the efforts of his late father, a former foreign minister. The USSR
long ago offered to return two of the four island groups, but was rebuffed, as
was the Russian successor state when it reiterated the offer. Recently, in a
meeting with Putin, Abe, drawing on a metaphor from judo, in which the Russian
leader is adept, indicated his willingness to conclude a “draw.” Since Putin
replied that he considered Abe’s offer more a clear win, it can be presumed
that the Japanese leader asked for more than the two islands. Despite the lack
of agreement, the exchange nevertheless represents the most positive news in
decades.[26]
A putative agreement between Russia
and China to divide their spheres of influence into Europe for the former and
Asia for the latter ignores the reality that Russia is an Asian nation as well,
with the bulk of its territory, though not the majority of its population,
located east of the Ural mountains. The Russian Far East, far less developed
and whose residents have markedly lower incomes than the country’s
western-dwelling citizens, would benefit from increased trade and investment
from Tokyo. Japan could also serve as a counterweight to increasing
Chinese influence there.[27]
An additional, and arguably the most
important, factor that could impact the Sino-Russian partnership is the
uncertain future of the Chinese economy. The ongoing volatility of the
stock market causes anxiety, as did the abrupt two percent devaluation of the
yuan in August. Despite the International Monetary Fund’s decision to
include the yuan in its Special Drawing Rights basket, capital outflows
increased. Though still very large, the PRC’s foreign exchange reserves have
contracted. According to J.P. Morgan, as of September 30, overall debt
reached 211 percent of gross domestic product, up from 201 percent in 2014 and
136 percent in 2007. The central government launched a multi-trillion yuan
program to address one major cause of the problem, local government debt, by
converting it into longer-maturity lower-interest bonds. However, financial
analysts warn that such measures simply postpone the inevitable while
exacerbating its effects.[28] In short, China’s economy is
struggling, which could result in failure to implement its ambitious plans,
thus reducing the value to Russia of cooperation with the PRC in exchange for
financial aid. The goal of a Silk Road linking Asia to Europe from a Chinese
hub may not be implemented, which would be a severe blow to Xi Jinping’s much
publicized China Dream and end his efforts to play the Great Game in Asia.
Other powers have tried to play the
Great Game and failed. Central Asia has been the undoing of several
empires, and could be for China as well. For now, that seems to be a risk that
the Chinese leadership is willing to take. And, for the foreseeable future,
Russia seems willing to play along with the PRC, for want of better
alternatives.
About the author:
*June Teufel Dreyer a Senior Fellow in FPRI’s Asia Program as well as a member of the Orbis Board of Editors. She is Professor of Political Science at the University of Miami, Coral Gables, Florida. Her most recent book is China’s Political System: Modernization and Tradition (ninth edition, 2014). Her current project is a book on Sino-Japanese relations, under contract to Oxford University Press.
*June Teufel Dreyer a Senior Fellow in FPRI’s Asia Program as well as a member of the Orbis Board of Editors. She is Professor of Political Science at the University of Miami, Coral Gables, Florida. Her most recent book is China’s Political System: Modernization and Tradition (ninth edition, 2014). Her current project is a book on Sino-Japanese relations, under contract to Oxford University Press.
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