Russia fosters Chinese dependence

MOSCOW, Russia — Many Western observers were shocked not just by what they found within the new military doctrine that Russia adopted last month, but by what appeared to be missing.

The doctrine, which spells out perceived threats and strategic priorities through 2020, for the first time in the country’s post-Soviet history named NATO — namely, its expansion — as the top threat to Russian security. It also made repeated mention of the country’s readiness to respond to aggression with nuclear weapons, despite ongoing negotiations with the United States to drastically cut the number of both countries’ warheads.

What the report lacked was any mention of Russia’s steadily rising eastern neighbor, China.

“In practical strategic thinking, the Russian leadership is paying a lot of attention to the rise of China,” said Fyodor Lukyanov, the editor of Russia in Global Affairs. “There is an understanding that potentially Chinese development might cause a lot, if not problems, then at least challenges to Russia.”

If that is indeed the case, no one in Russia is talking about it.

“We don’t write about our allies in our military strategies,” said Vladimir Kozin, head of the foreign ministry’s Asia-Pacific research department.

Instead, Moscow has been seeking to develop ties with Beijing by forging security groupings like the Shanghai Cooperation Organization, pushing for energy projects to integrate Russia with the East and encouraging investment to foster mutual dependence.

In January, Rusal, the aluminum firm controlled by oligarch Oleg Deripaska, became the first Russian company and the first non-Asian company to list on the Hong Kong stock exchange. Granted, Deripaska forwent London, Russia’s current financial capital of choice, because he faces a lawsuit there by a former business partner. And true, the Hong Kong listing was met with a host of problems, including delays in regulatory approval and a less than stellar opening.

Yet the move was widely touted inside Russia, with other companies quick to say they were also looking to list in Hong Kong, which last year had more initial public offering (IPO) than any other exchange.

Shortly after the Rusal IPO, Viktor Vekselberg (who, it should be noted, chairs Rusal’s board as the result of the merger that created the aluminum giant), said he would seek to list a company in his Renova holding group, Kamchatka Gold, in Hong Kong by the end of the year.

“Russian investors have a big interest in going to Chinese markets, particularly IPOs,” said Sergei Sanakoyev, head of the Russia-China Center of Trade and Economic Cooperation. “Rusal wasn’t the most ideal company to start in Hong Kong — it’s too heavy. In the future we’ll see middle-sized companies, like those dealing with innovation, high-tech, trade.”

Until the crisis impacted economic activity worldwide, Russo-Chinese trade was growing steadily for a decade. In 2008, bilateral trade stood at $56.8 billion, according to Chinese government statistics.

“There are also serious changes happening to the infrastructure of trade,” Sanakoyev said. “We’re moving away from illegal, uncivilized forms [of trade].”

He was referring mainly to the massive markets like Cherkizovsky, a sprawling Moscow market dealing primarily in smuggled Chinese goods that was suddenly shut last year. The move caused a minor spat between the two countries, with China protesting the closing of the market, where some 60,000 Chinese were estimated to have been working. Similar markets, though smaller in size, flourish around Russia, particularly in East Siberia and the Far East.

It is those eastern regions, severely underdeveloped and underpopulated, that present the greatest concern. They spread along a 2,700-mile-long border with China. The two countries only ended their last border dispute in late 2008, with Russia giving up two islands, known as Tarabov and Bolshoi Ussuriysky in Russian, and as Yinlong and Heixiazi in Chinese.

“Chinese economic expansion might influence Russian development, and Russia could lose leverage over the Asian part of the country,” said Lukyanov. “It’s not a military threat, it’s an economic or demographic one.”

A key means of tying resource-hungry China to Russia is energy.

In mid-February, Russia launched a new oil terminal on its Pacific coast at a ceremony overseen by Prime Minister Vladimir Putin.

“This is the completion of one of the biggest projects in contemporary Russia. This is a strategic project because it allows [us] to come to new markets, the growing Asia-Pacific markets," Putin said at the opening.

The terminal accepts oil from the East-Siberia Pacific Ocean pipeline (ESPO) — a $26 billion project that figures among the country’s most expensive infrastructure projects ever. Its first branch was opened last year, and a second branch, which would bring daily exports to 600,000 barrels of oil per day, is slated to be completed in 2014, though analysts consider that optimistic.

Russia has increasingly been turning its energy attention eastward, not least because of the realization that, in the future, Europe and North America will likely not need all the oil, and particularly the gas, that Russia has to offer. Politicized energy spats have prompted Europe to devote more resources to seeking alternate sources, while new technology has vastly increased gas production in the U.S. in recent months.

“Russia developing its relationship with Asia is partly about creating a counterpoint to its energy trade negotiations with the West,” said John Webb, the director of Russian and Caspian Energy at the IHS CERA, an energy consultancy.

“The drivers for ESPO appear to be primarily strategic as opposed to commercial,” he added. “It’s also about development of this sprawling and sparsely populated part of Russia – that’s been a long-standing goal.”

Negotiations over gas have proven trickier than those over oil. Despite years of talks, Russia and China have failed to conclude a deal, as the two tough negotiators continue to haggle over price.

Instead, China has turned to more malleable partners in Central Asia, opening last year its first ever overland gas pipeline, from Turkmenistan. Indeed, China’s influence can be felt throughout the region, as it pushes investment projects in infrastructure and natural resources. Some analysts fear that could be one flashpoint for Moscow and Beijing.

Another flashpoint could be the Arctic. A report by the Stockholm International Peace Research Institute released earlier this month said China had begun directing funds towards polar research, hoping to take advantage of melting ice that has given way to greater sea routes. Russia is already embroiled in a spat with the U.S., Canada, Norway and Denmark over Arctic territorial claims.

Yet, for now, China and Russia more often presented a united front to the West, particularly through the United Nations Security Council, where they stand together on issues like resistance to sanctions against Iran. They have also banded together to discourage use of the dollar, and last year said they would boost bilateral trade in rubles and yuan.

For now, it’s a strategy that is working. “Both sides are claiming there is the best relationship ever between Russia and China,” noted Lukyanov. Yet he worried about the longterm: “So far, I don’t see many signs of a well thought-out strategy, vis-a-vis not only China, but generally what Russia wants to achieve in Asia, especially since Asia is seen now as the main arena for 21st century political and economic development.”