The Chinese dragon is not hurrying to help out the Russian bear

A sceptical look at the relations between Russia and China

Photo: Zuma/ TASS

Originally appeared at Svpressa, tranlsated by Carpatho-Russian exclusively for SouthFront

The People’s Republic of China is investing in the economy of the Russian Federation 47 times less than in Africa.

On the eve of the official visit of the head of government of the Russian Federation, Dmitry Medvedev, to China, which is planned for December 14-17, it has become clear that economic successes of the “turn to the east” are much more modest than was expected.

Ambassador of the Russian Federation to the People’s Republic of China, Andrey Denisov, was compelled to acknowledge this. According to our diplomatic representative, the Chinese partners are not hurrying to invest in Russian projects after the departure of western banks from the Russian market. Instead of the expected “capital rain”, Russian-Chinese trade relations are undergoing an “investment drought”. Commodity turnover of Russia and China, which in 2014 was about $100 billion, was reduced this year by a third, falling to $70 billion.

“Let’s say openly that the hopes did not come true for those who thought that due to lack of financial interaction with the West because of the sanctions policy, we would turn to the East and investment resources would rush in from China . This did not occur. Our Chinese partners are approaching the issues of offering financial resources extremely reservedly and carefully”, recognized Andrey Denisov.

It is impossible to argue in the spirit that “the crisis that is war will write everything off”. The fall in economic growth rates of China did not prevent the Chairman of the People’s Republic of China Xi Jinping to announce recently at the second summit of the Africa-China forum that he was providing financing to the African continent in the amount of $60 billion. In comparison with investments of China in the Russian economy in 2014 ($1.27 billion) this looks like a simply astronomical sum. In turn, the volume of trade of China and Africa last year was $220 billion, which surpasses by a factor of 2.2 the similar Russian-Chinese indicator. The Economic crisis is not preventing China from preparing also for an economic “abduction of Europe”. So, Prime Minister of China Li Keqiang announced to double the investments of China in 16 European countries, as well as the annual volume of trade of the states, which at the moment comprises about $45.5 billion. By 2020 the commodity turnover with EU countries is overall supposed to come to the stratospheric heights of $1 trillion.

They are not forgetting about Central Asia in the Heavenly Empire: China is preparing to lay the high-speed railway of the “Economic Belt of the Silk Road” which will connect Urumqi and Tehran. That is, as one may easily guess, bypassing Russia.

Certainly, not everything is so bad and hopeless. During Dmitry Medvedev’s visit to China the parties plan to sign a number of agreements in the realm of power, space, aircraft, and nuclear power. In the visit agenda there is also the conclusion of the contract between Minvostokrazvitiya [Ministry of Eastern Development] of the Russian Federation and the committee on reform of China regarding joint development of transport corridors.

A “lifeline” might be the issue of sovereign bonds in yuans for the sum of $1 billion next year, as a new source of financing for Russian banks and enterprises under conditions of western sanctions.

In turn, the Chinese authorities expressed readiness to issue bonds denominated in Russian rubles in China, which is directed toward undermining the leading position of the dollar in the global capital markets. However, some experts are showing obvious skepticism relating to prospects for Russian-Chinese economic cooperation.

So, military China expert Andrey Devyatov pointed out that “Gazprom” is in fact independently financing construction of the gas pipeline Sila Sibiri [Strength of Siberia].

— Our president signed the agreement on laying of this pipe in 2006. And yet in 2015 the matter has not yet reached actual contracts yet. We read: during a meeting of Alexey Miller and the Chairman of the Board of Directors of CNPC Van Ilinya an arrangement was reached to sign in the near future the agreement to design and construct a segment of the Sila Sibiri gas pipeline, including along the Amur river bed.

It turns out that Gazprom will build the gas pipeline at its own expense, and the Chinese will buy gas for the minimum price.

“SP”: — You are claiming that China is trying to use the situation where Russia is compelled to diversify its export streams?

— Our government announced an achievement of tremendous diplomatic and commercial success — signing power contracts from the People’s Republic of China for decades and hundreds of billions of dollars. But the latter constantly rises and rises in relation to ruble. And the price for oil which is nominated in these dollars, constantly falls and falls. The price for gas is linked to it. As a result China will receive gas for almost a symbolic payment.

“SP”: — Why is the implementation of the “New Silk Road” project losing momentum with the participation of Russia?

— First, the Chairman of the People’s Republic of China Xi Jinping arrived in Moscow. This was March, 2013. Speaking at MGIMO [Moscow State Institution for International Relations], he recalled what had been a remarkable historical practice, when there was the Great Tea Road between Russia and China (with volumes of trade turnover second only to the Great Silk Road — editor’s note). And now it would be possible pragmatically, without any ideology, to restore this project. But has anybody above us listened and reacted in a timely manner to this offer?

As a result, in September of the same year Xi Jinping arrived in Astana and made an offer to Nazarbayev to participate in the revival of the Great Silk Road. Then the doctrines of the New Silk Road and also the Maritime Silk Road were published. Naturally, they bypass Russia, as also during those blessed times, to Turkestan, the state of “Iron Timur” [Tamerlane]. At that time there were some branches through Bactria (in adjacent territories of Uzbekistan, Tajikistan, and Afghanistan), the territory located to the southeast of the Caspian Sea. One of them went to India, and another through the Middle East to the Mediterranean. There was also a branch to the Crimea. In Moscow they missed the signal and did not hear China’s offer.

Therefore the New Silk Road is already going through Turkey. There will be $8 trillion invested in this project. And this will be guaranteed by aggregate Chinese power as a profitable market. Because Beijing has no place to invest such volumes of built-up reserves except in infrastructure. And this will be a prosperity zone, instead of medieval logistics with camels. Through the Asian Bank of Infrastructure Investments created by them, they have already invested $1.25 trillion. Clearly, whoever will be included in this project will get the profit.

Now this New Silk Road is “closed” by Turkey. And Turks brought down the Russian plane not by chance –this is a signal to Moscow: this issue will not be resolved without us. So, this is a question of $8 trillion, and not at all about tomatoes.

“SP”: — China has become on of the leaders in production high-tech. Why is Moscow not hurrying to use the opportunity to implement a transfer of technologies. Or does this not enter into the plans of China?

— Give me even one name in the corridors of power who is planning to setup an interaction with the People’s Republic of China in high-technology industries.

“SP”: — By all means, the Deputy Chairman of the government, Dmitry Rogozin, announced that Russia will deliver rocket RD-180 engines to China. In exchange we will have an opportunity to acquire microelectronics production.

— In the sphere of military and technical cooperation. we have already practically sold China everything that might interest them. Or it was stolen from us. A few years ago, the head of the Russian Federation acknowledged that Chinese investments into our country comprise less than 1% of the total amount of foreign investments of the People’s Republic of China.

Even our current supply of hydrocarbons to China too comprises less than 1 % of that we sell in the world.

“SP”: — Who or what is preventing Russian-Chinese cooperation on the announced high level?

— Xi Jinping suggested that we operate pragmatically, but we did not listen.

“SP”: — That is, there is not enough pragmatism in the Russian proposals?

— To operate pragmatically means to cease to take into account the westernized choices of our elites. And our liberal Russia offers nothing the People’s Republic of China for this reason.

“SP”: — Beijing is trading with the USA and the entire Western world, while here there is pragmatism? You could speak sooner about the ideology which is only slightly characteristic of the foreign policy of China.

— Chinese-American commercial relations are relations of a new type. Between them there is no confrontation.

“SP”: — What about incidents in the South China Sea, or the agreement on the Transpacific Partnership, behind which board of the USA left behind its Chinese “friends”?

— Americans are simply carrying out “demarcation lines”. They say, we are engaged in “globalization of the sea” (TTP plus TTIP with Europe), while you have “globalization of the land” (“New Silk Road”). Russia has no place in this deal.

“SP”: — What about declarations on interaction in the creation of a multipolar world…

— They also remain as conversations. If the Russian elites act together with the West, then let them turn to it. Moscow, despite its noisy break with the West, is in essence undertaking nothing. This is called the condition of strategic confusion.

The Director of the Russian-Chinese Center of the Financial University for the Government of the Russian Federation, Nikolay Kotlyarov, is not inclined to dramatize an “investment pause” which has arisen in trade relations between Russia and China.

— In many respects, this is actually caused by the current economic situation. Prices for energy raw materials have fallen, and correspondingly export has decreased in monetary terms. In addition, there was a two-fold devaluation of the ruble that has led to a rise in price of imports. Chinese consumer goods have become unaffordable for all. Many companies are rushing to sell out from their warehouses the goods for which demand has sharply fallen. A rise in price of Chinese production leads to reduction in commodity turnover.

As pertains to investments, here the situation is not tactical, but of a systematic nature. The Chinese are not hurrying to be put in the Russian real economy, as they are disturbed by investment climate. Chinese investors need state guarantees and a well-functioning system of investment insurance.

“SP”: — Why it it was not done from our side?

— In order to create a favorable investment climate, it is necessary to adopt our own laws and to join various international conventions. This is not so simple actually. And insurance bumps up against a shortage of financial liquidity.

The second factor is associated with the need to develop transport infrastructure in the Far East.

“SP”: — It is planned that during Dmitry Medvedev’s visit to the People’s Republic of China, an agreement on joint development of transport corridors will be signed.

— This is a very important point. Because now we have in the Far East only two basic railway main lines and about 20 vehicles crossings. There are still pontoon crossings, but they work seasonally. 75 % of cargoes are transported “on iron”, which it is necessary to expand.

The main problem consists in the fact that raw materials export range of commodities dominates for us. It is necessary to develop a new strategy in relations with China which would provide switching the accent from export of energy resources to the industrial development of regions of the Far East and Siberia.

“SP”: — This occurred on paper long ago: the legislative base for work of every possible priority development area and free trade zone in Vladivostok was created…

— This is obviously not sufficient to entice investors. And our investments in China are generally of minimum size. It is hard to enter the Chinese market — there is very high internal competition.

“SP”: — After the next “cold snap” with the West, a big bid was placed on cooperation from the People’s Republic of China.

— But who actually made a bid? Simply, our mass media actively exaggerated this subject and created a false opinion. In fact, experts understood long ago that a high level of political relations (joint membership in BRICS and SCO) is, of course, good. But it was time long ago to transfer this to the economic plane.

China is not waiting for us today, and it is necessary ourselves to look for and offer points of alignment of interests. First of all, it is necessary to work on creating a joint venture in high-tech. United Aircraft Corporation and the Chinese Comac intend to develop together a new long-haul plane based on the Il-96. Russia will provide the know-how and China the money. In general, it is not easy to cooperate with China. Because it prefers to take technologies, copy them, and then enter the world market with an “original product”.

However, in this duet Russia cannot claim an exclusive role as technological donor any longer. The Chinese also need to learn this. At least with respect to microelectronics.

“SP” : — What is China for Russia, in the long term — reliable ally, situational partner, potential competitor?

— I would consider the People’s Republic of China a strategic partner. It is clear that it is another civilization, with other interests. But it is possible to coexist with it. Certainly, the economic capacity of China surpasses that of Russia, and this creates fertile ground for alarmist moods. It is counterproductive to oppose the West and the East — it is necessary to go both here and there. By which, actually, China is engaged. Look how many European countries were included in the Bank of Infrastructure Investments created by Beijing. China is positioning itself as the leader of the developing world, and we support it in this issue. But it is necessary to learn to align our interests and not despair at the first failures. We don’t even have any lawyers on the investment law of China — in 8 years, only one master’s thesis has been defended. It turns out that we do not even know how the investment conditions in China are set up. Then how can one talk about a breakthrough?