Wednesday, 24 April 2013

China-Russia Summit Meeting Underscores Entente Over Central Asia

Published in Analytical Articles

by Robert M. Cutler (04/03/2013 issue of the CACI Analyst)

The success of the recent summit between the Russian and Chinese presidents is significant not only for agreements reached between the two sides but also for the absence of disagreements over Central Asia. Speculation abounded after the Soviet break-up over possible Russo-Chinese competition; but by the time the U.S. military established a presence in Central Asia in support of Afghanistan operations, a Sino-Russian entente had begun to close over the region. Today Sino-Russian energy cooperation outside Central Asia and deepening political elite-level friendships signify the re-assertion of that bilateral entente as the U.S. diminishes its profile in Central Asia.


BACKGROUND: Following the break-up of the Soviet Union, observers inevitably speculated about prospects for Russo-Chinese competition in Central Asia, but this did not occur any more than did the Turkish-Iranian competition in the region that was equally loudly bruited at the time. In the 1990s Russia, China, Kazakhstan, Kyrgyzstan, and Tajikistan came together as the “Shanghai-5” to deal with post-Soviet border issues before deciding in 2001 to establish the Shanghai Cooperation Organization (SCO). The recent meeting between Vladimir Putin and Xi Jinping marks the three-fifths waypoint since the entry into force of the bilateral Treaty of Good-Neighborliness, Friendship and Cooperation signed in 2001 (itself the first bilateral treaty since a similarly-named treaty of 1951), which provides for a “strategic cooperative partnership” that should be developed “from a long-term view and in a comprehensive manner.” The recent bilateral summit is remarkable for how little Central Asia or the SCO figured in discussions. This development signifies the further decline of regional multilateralism despite outsiders’ continuing attention to the SCO. It marks a continuing Sino-Russian emphasis on bilateral economic and strategic cooperation, in which Central Asia is just one part, and no longer even the most significant one.

The most recent set of summit agreements is a follow-on to those signed last May between the two sides at a trade and investment forum in Moscow. Reports of the recent summit naturally highlighted agreements over energy cooperation, but one principal agreement that was little noted was the quadripartite Memorandum of Understanding (MoU) signed by Russia’s State Bank for Foreign Economic Affairs (Vnesheconombank, VEB), the Russian Direct Investment Fund (RDIF, announced in 2011 as a vehicle for then-President Dmitri Medvedev’s never-implemented 2009 privatization program, and of which VEB now owns the whole management company), China Investment Corporation (CIC, the sovereign wealth fund) and the China-Russia Investment Fund (CRIF, a creature of RDIF and CIC). The MoU itself identified three main themes for future Chinese investment in Russia: favored projects will (1) require growth of new infrastructure and logistics, (2) focus on natural-resource processing including products with high value-added, and/or (3) target leading manufacturing and services companies. This means rapid development of heavy industries, and does not involve any Central Asian participation or economic activity in the Central Asian countries.

IMPLICATIONS: Many of the agreements reached are really agreements to agree rather than done deals. However, neutral observers close to the events have noticed a definite change in the atmosphere. Xi had expressed a desire to make his first foreign trip as president something to remember. Towards the end of last year the Kremlin touted that figures for Chinese-Russian trade turnover in 2012 could reach US$ 90 billion. Although such projections are typically very optimistic and sometimes conflate actual trade with agreements signed for future trade, nevertheless by last autumn China had become Russia's largest trade partner, due significantly to the energy commodities.

The just-mentioned MoU complements the various agreements over energy cooperation discussed at the summit. Two of these are of especial note. First, the planned doubling of the Skovorodino-Daqing oil pipeline to over 600,000 barrels per day looks to be on track. If actually doubled, the pipeline could account for close to 10 percent of Chinese oil demand. Thus the agreement signed March 22 provides for Rosneft to borrow US$ 2 billion from China Development Bank, guaranteed by 25 years of oil supplies. As part of the quid pro quo, the Chinese energy firm CNPC will explore three offshore Arctic areas for oil together with Rosneft and a few Western energy majors.

Second, an agreement for export of Siberian gas now appears possible. The two countries have been unable to agree on a price for over a decade, as Russia has asked for European prices, US$ 300-400 per thousand cubic meters (tcm) while China bid no more than what it offers to Turkmenistan, about US$ 250/tcm. According to reports, CNPC may finesse this difference with an advance payment for up to 30 years of gas, in essence an upfront interest-free loan. Moreover, the two sides have agreed to develop the “Eastern” route for the gas rather than the “Western” route, which Russia had preferred. Designed for an eventual capacity of 61 billion cubic meters per year (bcm/y) the so-called Power of Siberia project would begin with 38 bcm/y projected to start in 2018, exported through a roughly 2,500-mile gas pipeline to be constructed from Yakutia (Chayanda field) to Vladivostok via Khabarovsk.

The opening up of Siberian and Arctic energy projects to Chinese participation cements the gravitation of Russia’s international economic policy towards the East. Exactly how this will play out remains to be seen; but as in the Rosneft-CNPC venture, we might expect, in its general contours, some combination of Chinese capital, Western capital as well as technology, and Russian land and labor. As for Central Asia, Russia is complacent about Chinese economic penetration there; even in the energy sector so long as this prevents the region’s resources from reaching the European markets, over which Russia has sought for over a decade to establish a dominant role through North Stream, South Stream, and other well-known projects. Although Russia is still a presence in the Central Asian energy complex, it does not seek, as does China, to extract large amounts of hydrocarbons there for its own domestic use. Rather, Moscow prefers to leverage capital from Beijing to develop the Siberia and the Russian Far East. Still, China will drive hard bargains.

CONCLUSIONS: The success of the recent summit meeting between Presidents Putin and Xi is significant, not only for agreements that were reached between the two sides, but also for the notable absence of disagreement over Central Asian issues. The Shanghai Cooperation Organization (SCO) remains largely a shell that houses a periodic forum for multilateral meetings, where the most interesting conversations are the bilateral ones in the corridors. Yet the formation of a U.S.-sponsored “global anti-terrorist coalition” has not undercut the basis for the Sino-Russian rapprochement signaled by SCO’s institutionalization and, separately, also by the first bilateral Sino-Russian treaty in fifty years, both in 2001. Indeed, one of the few permanent organs of the SCO with any practical significance is the Regional Anti-Terrorist Structure (RATS) headquartered in Tashkent. Cooperation in this field with the Russian-led Collective Security Treaty Organization (CSTO) has been institutionalized since the end of the last decade, with appropriate lip-service to China’s campaign against the “Three Evils” (terrorism, separatism, and extremism) that Western human-rights NGOs have long contended conflates terrorism with domestic dissent in practice. The Central Asian states have shown China exceptional deference in these matters.

If in the 1970s under the Nixon Administration the U.S. played the “China card” against (Soviet) Russia, then today Russia is returning the favor. By the beginning of the present century, a Sino-Russian entente had already begun gradually to close over Central Asia. Unexpected U.S. “boots on the ground” in support of the military operations in Afghanistan seemed for a while to monkey-wrench that pattern. But today, with the U.S. extricating itself from that adventure, from which it distracted itself fatally in Iraq, that entente is re-asserting itself even if the economic presence of European, Asian, and indeed some U.S. economic-industrial interests prevents this from approaching a status of condominium (“joint rule”).

AUTHOR’S BIO: Dr. Robert M. Cutler <> is Senior Research Fellow, Institute of European, Russian and Eurasian Studies, Carleton University, Canada.

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