Friday, May 23, 2014

Putin's Game Could Redraw Asia Politics - checkmate!


As Vladimir V. Putin signed Russia’s historic $400 billion gas-supply agreement with China, he must have felt the satisfaction of a chess grandmaster revealing the inexorable outcome of a complicated endgame.

In theory, the next phase of the chess game between Russia and the West in Ukraine will begin with the Ukrainian presidential election on Sunday, but Mr. Putin’s positioning of the pieces means the outcome is preordained, no matter who emerges as the next president in Kiev. No wonder that the Russian stock market and the ruble have both rebounded, with the MSCI Russia index gaining 20 percent in dollar terms since its low point on March 14.

Having secured the territorial windfall of Crimea in March, Mr. Putin went on to achieve his main tactical objective in April. This was to destabilize Ukraine to the point where nobody could seriously contemplate the country’s joining the European Union, much less NATO. Just as important, from Mr. Putin’s standpoint, the combination of internal chaos and improvised referendums with Russian military exercises on the Ukrainian border distracted Western attention from the Crimean issue. They also deflected the threat of additional sanctions.

Now that a presidential election looks as if it will pass without major violence, it is hard to see what arguments the West would present for tightening sanctions or how Western countries would find the unity to do this, if they did try. Thus the incorporation of Crimea into Russian national territory has, in effect, been accepted by the world as an irreversible fait accompli.

Given the strategic significance of the Crimean city of Sevastopol as a naval base, not to mention the Russian people’s affection for Crimea as a vacation, retirement and cultural destination, the restoration of Crimea would, on its own, guarantee Mr. Putin’s political popularity for many years to come. But this week the news for Mr. Putin got even better.

Russia’s strategic gains in Crimea and Ukraine were already apparent by early May, which was when the Moscow stock market and the ruble started rapidly rising. But now the United States and Europe have delivered Mr. Putin another, even bigger, economic and geopolitical windfall: the prospect of a Chinese-Russian partnership to balance NATO and the American alliances in Asia.

A few months ago, neither Moscow nor Beijing would have imagined a Eurasian partnership possible or even desirable. And against a different diplomatic background, this week’s Chinese-Russian gas agreement might have been just another trade deal, with no great geopolitical significance apart from its effects on energy prices in various parts of the world. But things look very different in the light of recent global confrontations, not only between the West and Russia over Ukraine, but also between the United States and China over Japan, Vietnam, the Philippines and, most recently, cyberespionage.

When we consider the Western diplomatic ineptitude responsible for these events, culminating in Washington’s decision to issue arrest warrants for leading Chinese military figures the very day Mr. Putin arrived in Shanghai, the energy deal between Russia and China becomes potentially much more important.

Perhaps Mr. Putin’s trip to Shanghai could even be the start of a strategic realignment between nuclear superpowers comparable to the tectonic shifts that began with President Richard Nixon’s visit to China in 1972. Although such a suggestion may seem far-fetched and grandiose, there are five reasons Western leaders are overoptimistic and shortsighted simply to dismiss this idea, as they have invariably done in the past.

The first is that China is obviously a rising superpower while Russia is a declining one. This means both will inevitably experience frictions with the hegemonic powers that currently dominate global politics and economics. Since Russia is declining, its frictions will mainly involve encroachments on what Russia sees as its economic or territorial prerogatives by United States allies in Europe (which is how Russians see the present confrontation over Ukraine).

Since China is a rising power, it will create frictions by encroaching on American allies in the Pacific. In both cases, Russia and China will find themselves opposed by the United States.

A second reason to worry is the decline of American dominance, not because the United States is becoming economically or technologically weaker but because the American public is disillusioned with foreign adventures and no longer willing to act as the global police.

This means that United States allies can no longer realistically rely on the United States to deter Russia and China, especially in minor territorial disputes, even if American protection is theoretically “guaranteed” by treaties on mutual defense.

A third reason to take a Chinese-Russian axis seriously is the natural fit between these two countries’ economies, military capabilities and even their demographics. Russia has excess resources but a shortage of manpower; China faces the opposite problems. Russia is strong in advanced military technologies, aeronautics and software but very weak in mass production of consumer goods and electronic hardware. China has the converse strengths and weaknesses.

Fourth, a strategic partnership between China and Russia, the world’s second-largest and sixth-largest economies (based on the purchasing power parity of their currencies), could attract other countries, especially in Asia, that are unable or unwilling to commit themselves to Western standards of political democracy, corporate governance, trade and financial openness and safety of consumer products.

Fifth, and perhaps most important, a new element has suddenly been injected into superpower relationships by the events in Ukraine, combined with President Obama’s unexpected belligerence to China during last month’s trip to Asia.

While Chinese and Russian leaders have historically distrusted and even disliked one another, they are starting to dislike the United States even more. Russia’s reasons are obvious. In the case of China, there was less distrust until the United States suddenly turned up the heat on cyberespionage and territorial disputes in the China Seas. Perhaps Washington’s confrontational behavior is just a brief aberration. But if Mr. Obama continues to needle and provoke China, he will not just be making a historic blunder — he will be playing straight into Mr. Putin’s strategy.

Anatole Kaletsky is a Reuters columnist and chief economist of Gavekal Dragonomics, an asset management company based in Hong Kong.

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