Сhina's Impact on Russia's Economy Inozemtsev, V. August 2018 UI Brief

NO. 8 2018 PUBLISHED BY THE SWEDISH INSTITUTE OF INTERNATIONAL AFFAIRS. WWW.UI.SE Сhina's impact on Russia’s economy Vladislav Inozemtsev On June 9, 2018, at the very same day when would have it, a Euro-Pacific country and is the G7 leaders got together at Manoir preordained to serve as a gigantic ‘bridge’ Richelieu in Québec, Canada, for their that links Asia to Europe. Therefore as more annual summit, Russia’s President doubts concerning Russia’s position in Vladimir Putin gleefully peacocked in in Europe were growing, the more active front of reporters in Qingdao, China, became talks on both Russian standing side by side with the leaders of ‘Eurasianism’ and its ‘pivot to the East’. China, India, and several post-Soviet states, The latter idea was elevated to a highest who all are now members of the Shanghai rank, just a tad shy from becoming a Cooperation Organization. His three-day- national ideology, with official Kremlin- long state visit to China was used to linked experts drafting endless reports demonstrate how close the ties between the called ‘Toward the Great Ocean’, two nations were nowadays and how elaborated and extended every year. Since important China is for Russia. mid-2000s, China became a total substitute to the ‘East’ in the Russian sociological Without any doubt, China now appears one discourse even geographically ‘Russia’s of the most crucial allies of the Russian East’ was still the West: if one travels Federation – especially in a world Mr. Putin straight East from Moscow, she/he would deems Russophobic, claiming that it ‘is get to Novosibirsk, Kamchatka, southern evident and in some countries is simply parts of Alaska, northern Quebec, Ireland, going beyond all bounds’. China’s Britain, and Denmark – but by no means to influence on the Russian economy is either Beijing or Shanghai. humongous – and I would argue that it reaches far beyond the traditional issues of The China obsession was easy to explain. trade and investment (in both, actually, the First, in a geopolitical aspect, the things might go better than they actually partnership with Beijing in both bilateral are). Trying to elaborate a systemic look at relations and inside the SCO compensated the issue, I would focus on several Moscow for its subordinate position in dimensions of China’s role. regards to the almighty United States and to Europe, which Russia (at least Moscow Emotions believes so) will never become a part of. By cooperating with China, Russia makes up It might sound funny, but the first and for its loneliness in the contemporary world foremost element of China’s influence on and so regains the sense of greatness it Russia is the emotional one. Intermittently allegedly deserves. Secondly, from the (with short breaks in 2002-2003 and in economic point of view, with China on its 2009-2011,) Russia has positioned itself as side, Moscow may feel backed with a strong a staunch Western-sceptic, if not an open ally that grew up to the world’s second- adversary of the West. The entire largest economy and became both its ideological foundation of Mr. Putin’s greatest industrial powerhouse and its regime rests on the old assumption that biggest exporter of goods. With such a ‘Russia is not Europe’, that it should rather friend, Russia feels much more be called ‘Eurasian, or, as some researches economically secured even when facing 2 some hostile actions from the West; which wants Russia to fully embrace its therefore I would argue that Putin’s recent secular religion of human rights, boldness could be at least partially democracy, and rule of law. Alexander explained by the ‘China factor’. Thirdly, Nevsky was canonized by the Russian cooperation with China has also an Orthodox Church in 1547, and seems to important ideological (or rather, anti- become a role model for Mr. Putin, who ideological) component: the leaderships in opted to side with China in his showdown both Moscow and Beijing claim they are not with the West. obsessed with Western ‘standards’ whatever it means: the doctrine of human To summarize, I would reiterate that the rights or the principle of popular democratic very nature of Mr. Putin policies, whether self-rule. This all makes the cooperation so economic, domestic, or international, seductive that the Russian political elite dooms him to believe that the Sino-Russian opts for it without thoroughly calculating its alliance is the ultimate one that secures both pros and cons. Russian sovereignty and uniqueness even at expense of some economic concessions. I would argue that many centuries ago some And because, as we all have learned quite adventurous Russians have already been recently, Putin means Russia, and the thinking along the same line. In mid-13th latter’s existence without former is century, when Russian principalities were unfathomable, what is good for the country attacked by the Mongols, the north-western is good Mr. Putin and vice versa. All this part of the country, the democratic republic makes the ties between Russia and China of Novgorod, waged a different kind of war, crucial to the current regime – and the one against the Western Catholics. The perpetuates them even as the direct positive young warrior prince, Alexander impact of the cooperation does not seem Yaroslavich, later called Nevsky, defeated evident at all. Swedes on a shore of Neva River and German crusaders from the Teutonic order Trade on the ice-covered Chud’ Lake. But, after securing his Western borders from those So far, the bilateral trade has been the factor Catholics who wished to convert the of crucial importance to Sino-Russian Russians into their faith, he approached the economic interaction. Starting in the 1992 Mongols, with whom he never crossed with a total turnover of a mere $5.86b it has swords, and who didn’t care about their reached a staggering $95.3b in 2014 before vassals’ religion, and submitted himself declining to the current $84.0b as of 2017. voluntarily to the Great Khan, who awarded China surpassed Germany to become Alexander with the yarlik to govern his land Russia’s largest trading partner in 2011 and as long as he pays taxes to the Khan. I think holds this position ever since. But before that today Kremli is guided by the same praising these impressive results one should logic: it would rather be a second-class look deeper into the issue – both into its partner of an ‘ideologically neutral’ China structure and into its dynamics. which does not intervene into Russia’s domestic affairs, and even to engage into Russia started its cooperation with China unfair trade with it, than to ally with Europe after the Soviet-Chinese relations were 3 ‘repaired’ in the late 1980s. As China took green (in 1992 the figure was the lowest at its first steps on the path to industrialization, $1.119b, in 2001 – the highest with $5.25b). Russia positioned itself as a superior Unlike many other nations, Russia run partner, so Beijing became a prime buyer of comparatively similar balances with Russian machinery and equipment as well partners both in the West and in the East – as of weaponry and ammunition. Back in but soon China became an exception. While 1995, these two groups of goods accounted Mr. Putin announced in his addresses and for 68 percent of Russia’s exports while oil speeches that Sino-Russian trade that the comprised only 4 percent and natural gas overall trade over must reach another record was not shipped at all. Acting as a more (the biggest figure that he mentioned back advanced nation, Russia then secured a in 2011, was $200b to be reached by 2020), surplus of $2.14b in bilateral trade, buying he rarely addressed the figures of either primarily textiles, cheap watches, and exports or imports. And one may easily replicas of the Japanese electronics. But as understand why: the Russia-Chinese China grew, trade structure started to surplus disappeared already by 2004, and change – and today it appears that in the eventually the deficit grew to $8.5b in 2007 eyes of China Russia looks not better than and reached $18.7b in 2010 (I should say in the eyes of Europe: a huge storage facility that it became considerably lower from for mineral resources with no proper 2015 onwards, and may be completely management. As of 2017, out of $41.2b of leveled out this year – but only because of Russia’s exports to China crude oil and oil the massive oil supplies I mentioned products accounted for 59 percent, timber – earlier). If one sums up all the balances in for 9 percent, coal – for 6 percent and ores Sino-Russia trade for the years Mr. Putin and metals – for a bit more than 5 percent. rules Russia in one or another capacity Combined oil, oil products and metals’ paying more than 30 visits to China so far, share was larger than that in Russia’s meeting with the current President Xi 25 exports to the EU while machinery and times, and praising Russia-China military supplies dropped to below 8 cooperation, they would be in red for percent of the total. Imports from China around $59b, or by far the largest trade were dominated by machinery, electronics, deficit Russia ever run with any other mobile phones and office equipment that in nation. To understand why it happened one total made 61.5 percent of their value. To should address one distinctive feature of summarize, Russia used the last quarter of Russia-China trade deals. century to add to its title of Europe’s ‘commodity appendage’ the status of If it comes to China’s trade in resources China’s raw material colony, and would with the rest of the world, its most crucial bring this process to full fruition with feature consists in a kind of a superiority launching pipelines to export natural gas to China establishes upon each and every its southern neighbor.

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