Alaco

28.10.2015 | Russia/Chinese alliance suffers economic strains

Russian President Vladimir Putin lauded his country’s growing strategic partnership with China on a visit to Beijing in September 2015. “Russian-Chinese ties have now reached a peak,” he told reporters at a ceremony to commemorate the 70th anniversary of the end of the Second World War. And in many respects, Putin and his Chinese counterpart Xi Jinping have much to be pleased about. The two leaders get on very well, and military and security cooperation has reached unprecedented levels.

The two countries recently took part in their largest-ever joint naval exercise in the Sea of Japan and have also signed an agreement on cyber security issues. Deeply distrustful of each other during the Soviet era, they now see mutual benefit in their emerging relationship. With Western sanctions taking their toll on the Russian economy, Moscow regards China as an increasingly important economic ally. While militarily, Beijing sees advantages in cooperation with   Russia because it cannot find a partner of its neighbour’s strength amongst the BRIC countries.

But while the world powers appear happy with their alliance, there are suggestions that tensions may be simmering below the surface. For while security cooperation has been forging ahead, economic ties are far from healthy.

There’s been an approximately 30-35 percent drop in trade between the two countries in the last 18 months. Chinese FDI in Russia this year is 20 percent down on the last year. Moscow has received none of the $25 billion promised by Beijing as cash advances for gas contracts signed last year. Moreover, China has not delivered on promises to invest in the Power of Siberia gas pipeline – one of the main reasons why work on the project has yet to start. The only current initiative that China seems to be interested in is leasing Siberian land for agricultural production.

The alliance’s economic shortcomings are frustrating businessmen in both China and Russia who feel that priority is being given to military cooperation. But for the moment, Moscow appears to be prepared to stomach China’s apparent stalling tactics, despite the battering Russia has taken from Western sanctions and the plunging oil price. Some experts suggest the terms of Russia’s economic ties with China stem from miscalculations Moscow made in formulating a strategic plan for closer cooperation with Asian countries.

There’s a view that Russia’s pivot to the East was not triggered by the fallout from its annexation of the Crimea and military support for separatists in eastern Ukraine.  These events certainly added urgency to Moscow’s overtures towards Beijing, but Putin is said to have asked his government to prepare a strategic roadmap for closer economic ties with Asian countries as far back as the aftermath of the 2008-2009 financial crisis.

Designed to lessen what the Russian leader saw as his country’s overdependence on the West, the roadmap was however shelved, seemingly because it was not felt to be an immediate priority, particularly since at the time Russia had sufficient funds to withstand the world economic downturn. That assessment appears to have changed last year when the plan was revived after sanctions were imposed on Moscow for its role in the Ukraine conflict.

But experts say the roadmap was doomed to fail, at least in the short term, because the circumstances under which it was to be introduced were very different to those that prevailed post sanctions. In 2010, Russia was in a much stronger position to negotiate with China and other Asian countries over trade and energy projects. In 2014, Moscow’s position was substantially weaker, so the terms of the deals it struck with Beijing may have been less favourable. Significantly, Gazprom agreed to sell China gas at a price lower than that which some European countries are charged.

For the moment, then, there appears to be an asymmetry in relations between Russia and China, which may become more acute, as the signs are that Chinese demand for Russian energy resources will drop in the coming years.