Russia and China: Balancing without allying

Published 30.06.2015 21:41
Russia and China: Balancing without allying

Developing China-Russian relations ring diplomatic and political warning alarms for the U.S. and is a kind of game, with all its strengths and weakness, in which eventually Russia has a lot to lose and China has everything to gain

On July 9-10, the BRICS (Brazil, Russia, India, China and South Africa)/Shanghai Cooperation Organization (SCO) Summit will be held in Ufa. A few days ago, the Iranian ambassador in Moscow met with Russian President Vladimir Putin's special representative to the SCO and said he hoped Iran would soon become a full member of the organization. Iran's membership would be quite important for Russia and China in upholding their respective near-abroad and Asia-Pacific agendas against the U.S. The course of the Ukrainian crisis has deeply affected the relationship between the U.S. and EU and Russia and seems to be shifting geopolitics among great powers. With the Ukrainian crisis it has once again become clear that the future of European security is not untouchable and that within the EU, German-Russian relations are still the bedrock for all parties.

After all these skirmishes, Putin needs a non-Western ally to survive. On Russia's part, one of the most drastic changes coming into fruition is Sino-Russian relations, which outwardly looks quite capable of being a game changer in the international system and great-power politics, but inwardly carries on its shoulder many long-term obstacles and difficulties to overcome, especially for the Kremlin. Last month Chinese President Xi Jinping had a historical trip to Moscow. Before he arrived in Moscow, he stopped in Kazakhstan, which will be the heart of the new "Great Game" in Eurasia, especially between China and Russia, in the 21st century. In a gesture worthy of consideration, Putin turned to China after the Ukrainian crisis began. In May 2014, Russia and China signed a $400 billion gas deal, albeit one that is still vague as to how it will be carried out until gas starts to flow.

While troubling relations with the West, for China, Putin in the Kremlin is at the top of its wish list in the short run. On the other hand, Putin made Russia much more vulnerable to China on almost every front in the last decade while fighting with the West for the near abroad, something neither the West really wants to grasp nor Russia omnipotent enough to hold onto in the long run. Putin has been trying to get back to the Soviet Union's near abroad, reversing the color revolutions that took place throughout Eurasia, which seems quite futile when inwardly ignoring Russia. By doing so, within the last 10 years, Putin has neglected to upgrade Russia's economy, technology and infrastructure although one could say that Russia is still too big to restructure in a decade or so - after all, the U.S. has been bogged down and spent trillions of dollars in Iraq and Afghanistan, and China has increased its trade in Eurasia nearly 1,100 percent since 9/11. For China, having upgraded relations with a Russia that is isolated from the West would be a lucrative business, but on the other hand, a more isolated Russia would be a much more spoiled actor in the international system and fear of that outcome could possibly conclude the West's isolation of it. Putin indirectly uses and takes advantage of the motto that "Russia is too big to isolate," but at this point the Kremlin's priority is to focus only on the regime's survival.

The energy partnership between China and Russia can be achieved in the long run, if reluctantly. Until 2013, the amount of natural gas and oil that China had bought from Angola or Sudan was greater than what it had bought from Russia. More strikingly the EU currently imports 150 times more natural gas from Russia than China does. The $400 billion gas deal of May 2014 is not and will not be a monolith. The pipeline project will cost nearly $55 billion for which Russia could come short, and so far Russia is not willing to accept China's financial help to minimize Beijing's strategic leverage on the pipeline.

Today, the immediate problem for Russia is its economy and sustainable sources of credit. Isolated from London and New York, Russian companies are desperately looking for other sources. The possibility of using Russian and Chinese currencies in bilateral trades and all transactions might be scary for the Bretton Woods system and its linchpin, the U.S., but this is not something that looks likely to be achieved in the short run. Washington does not seem worried, at least not in this decade, since the Shanghai Stock Exchange is still closed to other international parties. And more importantly, the nonconvertible renminbi has been so far very good to both the U.S. and China. The presence of China in international financial markets is not yet dominant.

In October 2014, Russia and China signed a currency swap agreement. China has done such a thing nearly 20 times with other countries, but this deal is the first in history with Russia. After the agreement, the Russian finance minister announced that the two countries aim to transfer up to 50 percent of their trade into their national currencies, but it is worth mentioning that only 2.3 percent of Russia-China transactions were made in ruble-renminbi transactions in 2014. Obviously converting the transactions still seems a futile carrot-and-stick game for the West, however Washington needs to consider that if Russia and China decide to run their major trade articles with the entire world in rubles and renminbi, it would be the most serious attack on Bretton Woods since World War II. In such a situation Beijing will be much more cautious than Moscow to implement such an attack, and has myriad battles to lose, though as China knows well, onshore and offshore rates make such a possibility much harder than observers can imagine. Much more crucial is that Russia and China lack the financial infrastructure and institutions to operate globally, for example, foreign companies are still unable to issue bonds in the Shanghai stock market. Recently, banks in Hong Kong banned both Russian companies and individuals from opening bank accounts. So far, China is falling short in capitalizing on Russia as an alternative source to the West.

The Kremlin is not now in a situation to project or scrutinize any long-term strategy. For Beijing, while international public opinion concentrates on Putin, this creates a desirable environment to cover itself up for some time. A fully developed and arrived at "alliance" threshold of Sino-Russian relations is still hard to visualize and even more difficult to formulate, especially for the Kremlin. It seems a kind of game, with all its strengths and weaknesses, in which eventually Russia has a lot to lose and China has everything to gain. In particular, the future of Central Asia and Siberia is quite shiny for China, as much as it is dark and bleak for Russia. But in any case, the potential of a more justified balance between Russia and China would seem to be to serve as a hard check affecting the U.S., EU, Japan and India and their relations with all parties and the geopolitics of Eurasia. Russia and China have a "modus vivendi" at the moment, with tensions escalating for both in different ways and areas with the U.S. They both have a desire to keep any outsider out of intervening in the Eurasian landmass. At this momentous historical juncture, Iran and Turkey will also play significant roles.

Frankly, and more to the point, to whatever extent that Russia cooperates with China, China nonetheless cannot provide Russia with what the West can offer on the horizon. Strongly balanced Sino-Russian relations would definitely give the U.S. a much harder time in international institutions both diplomatically and politically. In such a case, the EU would find itself having to adjust to a much more uncomfortable situation.

In the short run, there are many reasons to strengthen relations between Russia and China. As many talk about SCO and BRICS emerging as a multipolar world order, focusing on the West versus a Sino-Russian pact is probably fruitless in the long run. It will most likely stay balancing without allying.

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