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The Russian Far East and Heilongjiang in China’s Silk Road Economic Belt

Written by Gaye Christoffersen.

China’s new Silk Road Economic Belt (SREB) is Beijing’s latest vision on how to reorder China’s relations on its periphery. This vision includes Central Asia and Russia, and requires Moscow to actively support it and to integrate Putin’s vision for a Eurasian Union with the Silk Road project.

Heilongjiang Province has its own “Heilongjiang Land and Maritime Silk Road Economic Belt” as part of SREB, and is also keen on accessing the Asia-Pacific through the 21st c. Maritime Silk Road.  Heilongjiang Province needs the Russian Far East as a transport corridor to the Asia-Pacific, which it assumes requires economic integration of China’s Northeast (Dongbei) and the Russian Far East (RFE).

An earlier Chinese vision for Northeast Asian economic integration, the Tumen River Area Development Programme, although supported by Moscow, faced stiff resistance from local Russians in the Russian Far East. The Greater Tumen Initiative, as it is now called, has not lived up to it promise. Twenty years later, Chinese scholars still discuss the Greater Tumen Initiative as having potential for success if there had not been local Russian opposition in the 1990s. Today they believe Tumen would be successful if China’s Northeast could be economically integrated with the Russian Far East (Dongbei-RFE integration).

Heilongjiang Province enthusiastically supports the idea of Dongbei-RFE integration, linking it to industrial rejuvenation of the province’s outdated industrial plant. Heilongjiang has lobbied for this since the 1990s, and finally succeeded in 2004 when the “Revive the Northeast” was launched.

In March 2007 Hu Jintao and Vladimir Putin issued a joint statement on Dongbei-RFE economic cooperation. The National Development and Reform Commission has taken charge of Dongbei-RFE integration since July 2007 and is in charge of revitalisation of the Northeast.

In October 2009, Premier Wen Jiabao proposed regional economic integration of the Russian Far East and Chinese Northeast, in the context of the Sino-Russian negotiations over the East Siberian-Pacific Ocean oil pipeline (ESPO). Called the Program of Cooperation between the Northeast of the People’s Republic of China and the Far East and Eastern Siberia of the Russian Federation (2009-2018), the regional integration agreement was a side agreement with less attention than the oil pipeline.

Chinese are disappointed that Russia has failed to implement more than 200 projects in the 2009 agreement on Dongbei-RFE economic integration, which continued to exist only on paper, ceased functioning before completion, and caused Chinese economic losses. China is concerned this pattern will be repeated by Russia in the SREB, blocking or delaying projects.

Heilongjiang’s enthusiasm was encouraged by the “Dongbei Gongcheng” [Northeast Project] in the Borderland History and Geography Centre at the Chinese Academy of Social Sciences which existed 2002-2007. The Northeast Project studied the history of Northeast China’s border relations with the Russian Far East using a heavy ideological slant. It revised history to support contemporary policies, providing a historical basis for contemporary Dongbei-RFE economic integration in a 2003 book, History of Economic Relations between the Chinese Northeast and Russia (USSR) from mid-17th century to 1949. The Project mobilised research institutes, universities and scholars throughout Dongbei to a certain political activism beyond scholarly interests.

China appears to have first incorporated Dongbei-RFE integration within the wider SREB when Chinese Ambassador to Russia, Li Hui, in February 2015 suggested to a Moscow university audience that SREB would cover the Chinese side of Dongbei-RFE integration and the Chinese side of oil and gas pipelines. This was before SREB and Russia’s Eurasian Union had formally linked but was under intense Russian-Chinese discussion whether they would be linked.

In March 2015, the Chinese Foreign Ministry issued an action plan for the SREB and Maritime Silk Road, the Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road. The Russian Far East was included in SREB’s action plan, in cooperation with Heilongjiang, Jilin and Liaoning in multi-modal transportation networks on land and sea. It was presented as a fait accompli that Dongbei-RFE economic integration would be incorporated into the SREB.

Two months later, the SREB and the Eurasian Union were formally linked during the May 8-9, 2015 visit by Xi Jinping to Moscow. This gave Russia, and the Russian Far East, a role in SREB.

Chinese scholars note that the Dongbei-RFE project’s incorporation into the SREB transformed the Dongbei-RFE project from a narrow regional project into a part of China’s rise and globalisation. This is a new situation for local-level initiatives to be linked to an anticipated power shift.

SREB did not initiate Chinese ideas on Dongbei-RFE economic integration. Instead it took these decades-old ideas and incorporated them into a new framework. After the Chinese SREB and the Russian Eurasian Union projects were formally joined, the absorption of the Dongbei-RFE integration project onto this larger framework appeared certain.

Moscow’s expectation of China’s SREB is to supply capital and technology for the Russian Far East, building industrial capacity for exported manufactures to markets in East Asia. The first Eastern Economic Forum (EEF) in Vladivostok, September 3-5, 2015, was meant to attract investors to priority projects in the RFE. For Moscow, SREB is a solution on how to finance RFE development.

The EEF was followed by the First Meeting of Regional Cooperation Council of Northeast China and Russian Far East, chaired by Chinese Vice Premier Wang Yang and Deputy Prime Minister and Presidential Plenipotentiary Envoy to the Far Eastern Federal District, Yury Trutnev. This meeting indicated Dongbei-RFE integration would be state-led and top-down.

A round table in Novosibirsk, September 2015, was held to reassure Siberia and the Russian Far East that they would not be exploited by SREB but rather advantaged economically. Russian Far East resistance to economic integration with China’s Northeast now appears futile.

The economic benefits of RFE participation in SREB and Heilongjiang’s Silk Road plans are clear but it is also apparent that the SREB brings constraints on RFE foreign economic relations and limits choices.

Beginning with the Tumen project, then the Rejuvenate the Northeast project with Dongbei-RFE integration, and currently the Silk Road Economic Belt, there seems to be a historical pattern. It begins with a Chinese vision of Sino-Russian economic integration along their common border, local enthusiasm in Heilongjiang Province, local resistance in the Russian Far East, especially Vladivostok and Primorski Krai, resulting in a project that fails to be implemented. This is followed by a new Chinese project which incorporates the previous one with expectations that the new project will facilitate implementation of the older one. How the Silk Road Economic Belt is implemented will demonstrate whether this pattern is altered.

Dr Gaye Christoffersen is Resident Professor of International Politics at Johns Hopkins University, SAIS, Nanjing Centre.  Her research focus has been primarily on transnational, non-traditional security issues such as piracy, energy, and other issues on which East Asian nations cooperate in Asian multilateral regimes. Image credit: CC by Brian Yap (葉)/Flickr.

A Sino-Russian Alliance? Rationales and Realities

Written by Jingdong Yuan.

Since the early 1990s when Russian President Boris Yeltsin and his Chinese counterpart Jiang Zemin first laid the foundation of a partnership between the former allies (1950s) and foes (1960s-1970s), Beijing and Moscow have gradually elevated the bilateral relationship to its current comprehensive strategic partnership. In 2001, the two countries also signed a treaty of friendship and cooperation.

China and Russia have significantly expanded their bilateral ties in many areas over the past twenty years, from Russian sales of advanced weapons systems and military technology transfers to major energy cooperation projects. In 2001, together with four other Central Asian states, Beijing and Moscow established the Shanghai Cooperation Organization, a regional arrangement whose initial priorities were to combat terrorism, ethnic separatism, and religious extremism, but have subsequently evolved and expanded to include energy development, economic cooperation, and regional stability. Over the past decade, the Eurasian grouping has staged the bi-annual Peace Mission joint military exercises. Many Western analysts have suggested that SCO may have become a military alignment, if not an alliance.

The past few years have also witnessed further strengthening of bilateral ties. President Xi Jinping chose Russia as his first foreign country to visit after becoming the head of state. Presidents Putin and Xi have met no less than ten times already and the comprehensive strategic partnership has entered a new phase, with deepening political trust, mutual diplomatic support of each other’s core interests, and broader strategic consultation on major international and regional issues. Some have suggested that given the security threats that they both face, especially the growing rivalry and, in Russia’s case, open confrontation, with the United States, there are good rationales for Beijing and Moscow to seriously consider forming an alliance.

Indeed, Russia’s deteriorating relationship with the United States over a number of contentious issues ranging from NATO expansion, U.S. deployment of missile defence systems in Europe, to Russian actions against Georgia and Ukraine has resulted in America-led sanctions, causing significant economic difficulties for he former superpower, especially at a time of oil price dipping to its lowest level in years. Moscow now has its own strategic pivot to Asia, and relations with China become ever more critical.

China likewise is also facing major security challenges in East Asia. It is embroiled in territorial disputes with a number of Southeast Asian states and with Japan. China’s growing economic power and military might have instilled anxieties and concerns among its neighbours. The U.S. pivot to Asia, spearheaded by strengthened American military presence and basing access in the region, revitalised alliances and security partnerships, and Washington’s more active diplomacy, is viewed by Beijing as concerted efforts to contain China.

A Sino-Russian alliance could join forces of two pivotal Eurasian powers to counter the American offensive and undermine the U.S.-led order. In geopolitical terms, Eurasia strides across the vast landmass and provides strategic depth against maritime powers such as the United States. Russia has ample resources, advance military technologies, and the market potential that could be met by China’s financial and economic might, huge appetite for energy, and a military still in need of massive upgrading. In short, an elevation of the current comprehensive strategic partnership to an alliance is not completely out of the question.

Attractive as the idea may seem, there are many reasons against China and Russia forming an alliance anytime soon. Rivalry and confrontation with the United States is a necessary but not sufficient condition for Beijing and Moscow to take that step. To begin with, although both Russian and Chinese security interests to some significant extent face U.S. threats, the latter have not become so serious as to threaten both countries’ core interests and each, on its own, still possesses sufficient will and capability to counter such threats. In Russia’s case, while its overall power has declined since the disintegration of the former Soviet Union, its military power, in particular the nuclear arsenal, will remain the guarantor to secure and protect its core interests.

China, on the other hand, does face greater challenges in East Asia as the U.S. strengthens alliances, builds up security partnerships and reinforces its military presence. However, the U.S. pivot has as much to do with reassuring allies and friends as it is to retain its primacy; it is less about directly challenging China’s core interests, Beijing’s protestation notwithstanding. The current frictions between the two countries, from what China perceives as U.S. biased in the maritime territorial disputes, to U.S. charged Chinese obstruction to freedom of navigation, are either third-party related or manageable as both sides are anxious that disputes not escalate to military confrontation and war.

At the same time, both China and Russia continue to cooperate with the United States in areas where they share common interests with the latter. Russia and the U.S. share common interests in anti-terrorism, nuclear non-proliferation, a solution to the civil war in Syria, and implementation of their nuclear disarmament agreement. Beijing and Washington, meanwhile, cooperate on a range of issues from climate change and North Korea, and share common interests in restoring global economic and financial stability.

Under such circumstances, alliance formation appears unnecessary as it is counterproductive, for both China and Russia. While sharing and promoting common objectives such as a new multipolar international order, non-interference in domestic affairs, and the important role of the United Nations Security Council, their priorities are different, as are the challenges they face. Alliance would require both to commit to, and therefore entrap in, the other’s security agendas, running the risks of getting dragged into major military conflicts with a third party not of its own choice. While the two countries have expanded and deepened their strategic partnership in recent years, the scope and foundation of that partnership remain limited and the core pillars of true partnership, not to mention an alliance, are lacking. Apart from energy and defence industry transactions, bilateral trade remains minuscule at around $90 billion annually, as is investment level. And some of the Russian elites still harbour suspicions over China’s long-term intensions and worry about China’s continuing economic and military rise.

Professor Jingdong Yuan is an Associate Professor at the University of Sydney Centre for International Security Studies. He specialises in Asia-Pacific security, Chinese defence and foreign policy, and global and regional arms control and non-proliferation issues. Image credit: CC by Dmitry Terekhov/Flickr.

Russia and China: Competing or complementary priorities?

Written by Natasha Kuhrt.

In Russia’s overall policy in the Asia-Pacific the tendency has been for an intensification of Sino-centrism in Russia’s Asia policy. However, in the latest iteration of the “Concept of the Foreign Policy of the Russian Federation”, approved by President Putin in 12 February 2013, the order of regional priority of the Asia-Pacific region was fifth place after CIS, the Euro-Atlantic region, the US and the Arctic. This might seem surprising given the amount of space devoted to the so-called Russian pivot to the Asia-Pacific. Yet we find that the Asia-Pacific region had actually been downgraded in Russian foreign policy from fourth place in contrast to the earlier version of the “Concept” published in 2008. Asia-Pacific policy in the third Putin’s administration was formulated reflecting the changes in the security environment both in Northeast Asia and Southeast Asia. Russia’s interest has been in deepening an equal, trust-based partnership and strategic cooperation with China, but also in strategic partnerships with India and Vietnam, and developing mutual beneficial relations with Japan, South Korea, Australia and New Zealand. This orientation has widely been viewed as a reaction to US president Barack Obama’s “rebalance to Asia” policy and potential conflicts between China and its neighbours, first and foremost, in the South China Sea.

Yet many see the Russian approach to China as a new, more accommodating one and in particular since the Ukraine crisis, there is a sense that the economic impact of sanctions and a falling oil price has forced Russia to yield economic positions to China. However, the general trend has been for trade between the two countries to be on the decline. Chinese exports to Russia fell by 36% in the first half of 2015 and trade has stalled at $90 billion, while the target agreed some time ago was $100 billion by 2015. Further, the economic slowdown means less demand for key Russian goods such as metal, chemicals, while the share of oil and hydrocarbons is nearly 70%.

As Vitaly Kozyrev notes, the US and the West perhaps ‘underestimate rapprochement between China and Russia…’ On the other hand there is also a tendency in Russia to overestimate the potential of this relationship to transform bilateral and regional ties.

The May 2015 agreement on cooperation between the Eurasian Economic Union (EEU) and the One Road, One Belt project (OBOR), looked as if Russia was again making concessions to China. The OBOR is still a rather undefined project but it also tends to highlight China and Russia’s different approaches to regionalism, where China has seemed critical of the EEU for its exclusive approach and as cutting off China from Central Asia. The process whereby a Russia-led Eurasian Economic Union together with the Chinese ‘one road, one belt’ in Central Eurasia, fuse together to form a ‘Greater Eurasia’ has been hailed by Aleksandr Lukin as a paradigm change in geopolitical terms although he acknowledges the difficulties in coordinating within the SCO. This highlights Russia’s approach to regionalism, whereby Russia increasingly proposes alternative ideas of global order, focused not so much on ideas of multipolarity, and more on new forms of regionalism, in which hegemonic control by Great Powers in their own spheres of influence is viewed as both legitimate and as an essential element in the construction of a new, post-Western world order. This is quite different to Chinese approaches to regionalism, which tends to be more functionalist.

At APEC 2014, Putin said he supports OBOR, but that it should link up with the Trans-Siberian railway, because of concern that OBOR might divert transport away from Russian railways (a major source of rents). The lack of clarity on the content of this project is unsettling for Russia. At times Russian officials have appeared sanguine, but at others, have expressed concern that while Beijing does not present OBOR as an integration project, the reality will be rather different.

Although the subject of the ‘China threat’ has been virtually taboo since the mid-2000s, economic and trade relations have become a ‘safe area’ from which to criticize relations, given the sensitivity around direct references to any hypothetical military threat. This might be seen in the broader context of the securitisation’ of economics taking place in Russia today.

Overall, Russia’s position vis-à-vis China is to continue the economic relationship, which brings economic rents for Russian elites, but to maintain a policy of equidistance in the Asia-Pacific region and not to clash with China directly, whether along the Sino-Russian border, in Central Asia. One Central Asia expert notes that whereas previously Central Asia seemed as if it would become a bone of contention between the two countries…the priority in Moscow and Beijing remains the broader strategic relationship’.

This may have more to do with Russian priorities, than an acceptance of Chinese pre-eminence however. On the EEU and OBOR cooperation agreement, Trenin suggests that while at the rhetorical level Eurasian economic integration is still a priority, the economic crisis and the rift with the West, means that the EEU will now be ‘on the back burner of Moscow’s foreign policy’ for some time to come. This raises the question as to how Russia will manage to fulfil all its priorities vis-à-vis the West and other aims in Syria, whilst also dealing with Chinese putative plans in Central Asia.

Ultimately, although China remains an important part of Russian foreign policy, as the Russian think-tanker Dmitrii Trenin reminds us, ‘Russia’s principal foreign policy priorities, as evidenced by its actions in Ukraine and Syria, are checking any further advance of NATO in Eastern Europe and confirming Russia’s status as a great power outside the post-Soviet space’ –i.e. global power projection.  This is quite different to Trenin’s assessment the previous year, when he suggested that ‘… China is seeking to restore its “natural” historical position of pre-eminence in Asia and eventually globally. Meanwhile, Russia is no longer in the running for world primacy. It is merely seeking to establish itself as a centre of power in Eurasia and a member of a global concert of powers.’ Given Russia’s actions in Syria however, it appears that Russia’s objectives are more ambitious.

In the Asia-Pacific region it’s still ‘all about Beijing’, given Russia’s economic limitations. However, at the broader global level relations with the West, principally, economic relations with the EU and recognition from the US remain top priorities. Nevertheless, in many ways it is true to say that good relations with China allow Russia to approach the West with greater confidence.

Dr Natasha Kurt is a Lecturer at the Department of War Studies, King’s College London. Her areas of research interest include Russian and Post-Soviet foreign and security policies, post-Soviet debates on international relations, regional security complexes, especially in Central Asia and the Asia-Pacific, nationalism, and sovereignty and debates on intervention/human rights. @NKuhrt. Image credit: CC by Clay Gilliland/Flickr.

Chinese Perspectives on Events in Ukraine: Implications for Sino-Russian Relations

Written by Christopher Marsh.

Much of the focus on Sino-Russian relations relates to the two nations’ economic, political, military, and social interactions. But there is more to the relationship than simple bi-lateral ties. There is a rather solid body of literature on the mutual perception of these two societies, dating back to the Soviet era. This body of literature illuminates the many underlying tensions that have often existed in relations between Moscow and Beijing. Today is no different, as Russia’s annexation of Crimea and meddling in eastern Ukraine problematize China’s relations with Russia and Ukraine, and perhaps threaten Beijing’s vision of a multipolar world and its peaceful rise in it.

Very early on in the Ukraine crisis China tried to navigate an independent, non-confrontational approach, one that even bordered on the apologetic. As the Chinese press stated at the time, “The strategic position of Ukraine is very important. The US and the EU want to continue to compress Russia’s strategic space by pulling Ukraine into the Western sphere of influence, while Russia is determined to continue the strategic front of its rejuvenation by maintaining its influence over Ukraine.
If Ukraine wants to depend on foreign forces to solve its domestic problems it may find that things do not turn out as planned.” As the piece concluded, it is “not wise for its domestic political factions to invest all their faith in either the West or Russia,” a statement very much in line with Beijing’s desire to see the emergence of a multipolar world, one in which no state dominates international relations.

“No Exclusive Interests Involved”

Such a position was also clearly in line with China’s recent trend of increasingly warm relations with Russia. China stated at the time that it had “no exclusive interests involved,” hoping it could stand by the side-lines and not have to take a stand on the crisis. China also offered that the starting point for resolving the Ukraine crisis was “to protect the fundamental interests of the Ukrainian people and maintain a peaceful and stable regional environment.” In terms of responsibility, “both domestic and foreign forces” were deemed responsible for the crisis. “It is imperative for all parties to avoid doing anything to increase regional tension. The crisis must be resolved through calm political and diplomatic measures,” Beijing argued.

As the crisis evolved, however, and as it became clear that Russia was not going to halt its operations, China was forced to alter its stance. Soon, the annexation of Crimea would be something that was nearly inevitable, not a clear act of aggression, and Kiev would be as much at fault for the crisis as was Moscow.

In an article in China’s leading Russian studies journal Eluosi yanjiu (俄罗斯研究, Russian Studies), Feng Shuai (封帅) argued in the summer of 2014 that throughout the post-Soviet period Crimea failed to develop its own distinct identity and this ultimately led to Crimeans embracing reunification with Russia. Feng is one of China’s leading scholars of Russia and the former Soviet Union and is at the Centre for Russian and Central Asian Studies at the Shanghai Institute for International Studies. He is very familiar with the current Russian and Western literature on the subject of nation-building and identity construction, and deeply knowledgeable of Russian history. Thus, his analysis carries significant weight in China.

In this article, Feng traces Crimea’s existence throughout history, focusing primarily on the Soviet and post-Soviet periods. The essence of his argument is that Kiev was unable to develop a viable Ukrainian national identity that included Crimea, and Crimean Tatars were not able to develop a distinct Crimean identity, not least because they are not the majority of the population on the peninsula. So the strengthening of a Russian national identity among residents of Crimea was almost inevitable, and with Moscow’s “support” it became “unstoppable.” The acts of aggression and the violation of territorial sovereignty are of course lacking from such an account of the Ukraine crisis.

The “Reunification” of Crimea

Where Feng’s interpretation of events differs from the dominant narrative in the West is that he sees Crimea as genuinely embracing Russian identity and reunification (rather than annexation) with Russia. As Feng put it, Crimea’s joining with Russia was “ultimately inseparable from the interference of external forces, but [it was done with] the overwhelming vote of Crimean residents… the majority of Crimean residents support this change…[and] one can even say that they have been looking forward to” it. In this way, the ends justify Russia’s means.

This interpretation is becoming the dominant one in China today, partly due to Beijing’s strategic relationship with Moscow. But the PRC also has strong economic and diplomatic ties with Kiev, and this is at least partly responsible for the more moderate approach to its interpretation and lack of outright condemnation of Russian actions in Ukraine.

Another factor that is certainly involved is the analogous situation that exists with Taiwan, a territory Beijing argues it has rights in and which it may someday seek to exert, either in a similar or dissimilar fashion to Russia’s military operations in Crimea and eastern Ukraine. Thus the Chinese coverage of the Ukraine crisis has a conspicuous absence of any blame on Putin himself and certainly no talk of Russian aggression. As for Crimea itself, since China still hopes for the reintegration of Taiwan, it cannot help but be sympathetic – if not even perhaps jealous – of Russia’s annexation of Crimea.

In addition to the annexation of Crimea, there is Russia’s continuing operations – both overt and covert – in eastern Ukraine. China continues to refer to this involvement beyond Crimea as “alleged.” As recently stated in an article in Xinhua, relations between Russia and the West “have deteriorated over Moscow’s annexation of Crimea and alleged involvement in the Ukraine crisis” (emphasis added). Moreover, Russia is “burdened by” the “confrontation” with Ukraine. In short, the Ukraine crisis “plagues” Moscow’s relations with the West.

A Threat to the Silk Road Spirit?

Although China is not blaming Russia outright for the events in Ukraine, neither are they condoning the violence, which they seem as quite regrettable. But again, Ukraine is not seen as innocent; its cooperation with the West and flirtation with NATO forced Russia’s hand. But China has economic and even security interests in the region, as it seeks to promote the “Silk Road Spirit” – its vision of “peace and cooperation, openness and inclusiveness, mutual learning and mutual benefit.” As it seeks the deeper integration of markets among the countries along the Belt and Road, thereby jointly creating an open, inclusive and balanced regional economic cooperation architecture that benefits all, violence anywhere along the New Silk Road poses a threat to Beijing’s vision. The question is, can it continue to turn a blind eye to Russian action in its near abroad, particularly if Moscow becomes increasingly belligerent in the years to come.

Christopher Marsh is Professor of National Security and Strategic Studies at the U.S. Army School of Advanced Military Studies in Fort Leavenworth, Kansas. Image credit: CC by Sasha Maksymenko/Flickr.

The One Belt-One Road Initiative’s Natural Gas Predicament: Pipelines vs LNG

Written by Ariel Cohen.

The Chinese Communist Party leadership proposed the One Belt One Road (OBOR) initiative in the fall of 2013 to connect a number of economies in Eurasia and along the coasts of the Indian Ocean all the way to the Middle East together into a China-led economic zone. This area of economic development is designed to spread from China through Eurasia and the Middle East all the way to Europe.

Along this route there are several natural gas rich nations, including Azerbaijan, Iran, Kazakhstan, Russia, Turkmenistan, and Uzbekistan. All these nations are trying to expand their gas export capacity. Their main challenge comes down to production costs and the infrastructure to export their prized commodity. Currently, the two biggest importers of natural gas for Kazakhstan are China and Russia, but a lot of its natural gas is used for re-injection in the production of oil. Turkmenistan exports mostly to China due to the explosion of the pipeline to Russia in 2009 and the halt in Gazprom imports in 2016. All exporters and consumers are affected by the rise of Liquefied Natural Gas, or LNG.

China has signed long-term LNG contracts with companies from Australia, Qatar, Indonesia, Malaysia and others. These contracts’ duration is set between 15 to 25 years, and the LNG pricing is normally indexed with oil prices. The current natural gas price is roughly $8.25 per million British thermal units (mmbtu). China imported 20.2 metric tons per annum (mtpa) of LNG in 2015. Qatar, the world’s largest exporter of LNG, is beginning to reroute LNG to Europe as demand in Asia deceases, which infringes on Russia’s largest market. This LNG market trend has caused Russia to turn east with two large pipeline projects entering eastern and western China.

The eastern pipeline, Power of Siberia, is estimated to have a capacity of 61 billion cubic meters (bcm), with 38 bcm being exported to China. It is expected to be online by 2019. The western pipeline, Power of Siberia 2, is estimated to have a capacity of 30 bcm, but no final deal has been made. With China diversifying suppliers of natural gas from outside the OBOR, and Europe looking to diversify away from Russia, how do the Eurasian countries gain market share?

Kazakhstan and Turkmenistan are naturally endowed with large amounts of natural gas. Kazakhstan has about 3.8 trillion cubic meters (tcm) of natural gas reserves as of 2014, while Turkmenistan has roughly 17.5 tcm as of 2015. As mentioned before, the pipeline infrastructure is the Achilles heel for both countries’ natural gas exports.

Kazakhstan has two main export pipelines, one heads to China and the other to Russia. Kazakhstan’s solution is to reinject natural gas into oil fields to extract more oil. Turkmenistan has one sizeable and reliable exporting pipeline connecting it to China via Uzbekistan and Kazakhstan. Another pipeline allows Turkmenistan to sell gas to northern Iran, but in the past, payments were intermittent.

Due to their landlocked nature, Eurasian countries are dependent on pipelines. The OBOR initiative could be the solution to these countries’ exporting challenges. By gaining the necessary foreign investment and expertise, Eurasian gas exporting countries could diversify their pipeline network in an attempt to send more gas to foreign customers, especially in China, and diversify their customer base.

Kazakhstan and Turkmenistan in particular are in an ideal position to take advantage of the demand for natural gas. Energy starved countries like Pakistan and India, with populations around 190 million and 1.3 billion people respectively, are looking for ways to satisfy their energy needs. Pipelines like the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline would help in satisfying demand in such burgeoning populations. This pipeline could be a winner for all involved. However, Pakistan-Indian relations, terrain, and security are the main issues preventing the development of that pipeline.

The demand for natural gas from India and China is growing not only for economic reasons but also for environmental pressures, as both countries will increasingly try to ween off of coal in the next three decades. The opportunity to gain market share for Azerbaijan, Iran, Russia, Kazakhstan and Turkmenistan is there, and with the help of OBOR, that could become a reality.

On the other hand, key consumer countries and regions, including Pakistan, India, China, Indonesia, Philippines, etc. also have coasts along the oceans, which allows for LNG to be a player in these markets. As of 2014, LNG has contributed to 10% of the global natural gas supply and is expected to continue growing to 15% by 2035.

The biggest asset of LNG is its ability to move large amounts of natural gas long distances, similar to the oil market. This gives LNG great flexibility in regards to being able to enter just about any market on the globe that has regasification facility, floating or stationary.

At the same time, LNG allows markets, such as Europe, to have a plethora of suppliers and not be entirely dependent on a single supplier. However, the flexibility in suppliers you gain from LNG results in higher costs of natural gas.

Permanent regasification LNG facilities cost billions of dollars to construct. Floating LNG facilities cost around $100 million. LNG export projects are even more expensive. The Gorgon project in Australia has an estimated cost of $54 billion dollars. For comparison, the Power of Siberia pipeline from eastern Russia into eastern China is estimated to cost $55 billion dollars, but it is one of the most expensive projects on the planet.

Australia itself has five more LNG projects that have estimated costs varying from $12 billion to $34 billion.  As of 2014 the global LNG fleet count is at 373 ships with 68 more on order to be built. The largest capacity LNG ship, the Q-Max, can hold about 162 mcm. However, only a select few ports can handle such gigantic ships, and most of them ship out of Qatar.

The price difference of LNG compared to piped gas can be substantial. January 2016 exports by Gazprom of gas to Europe were at $3.50/mmbtu while LNG from the U.S. to Europe was roughly $4.30/mmbtu –a significant difference. With Russia having the largest reserves in the world, it could try to cut the price of natural gas to Europe and make higher cost producers suffer. If that maneuver was implemented and successful, there is a possibility other non-LNG gas suppliers could employ the tactic to protect their market shares elsewhere – not unlike Saudi Arabia pumping more barrels to cut the price of oil in order to hurt higher-cost producers: Russia, Iran and the North American oil shale and oil sands producers.

If LNG becomes too expensive to compete in some markets, then naturally piped gas is the preferred selection. Concerning Turkmenistan and Kazakhstan, the Trans-Caspian pipeline would be a substantial exporting option. This pipeline would connect both countries’ natural gas supply to the Southern Gas corridor and the TANAP-TAP pipelines. TANAP-TAP is a pipeline system that starts in Azerbaijan and transits thru Georgia, Turkey, Greece, and Albania to end up in Italy, where it will disperse gas further into the European market. The estimated cost of the Trans-Caspian is roughly $5 billion and, with addition of compressor stations, it would provide over 30 bcma.

Another pipeline endeavor on the OBOR route is the recently inked investment agreement of the TAPI gas pipeline. This project is estimated to cost around $10 billion, and Turkmenistan is planning on exporting 33 bcma. A project like this could be an important part of OBOR due to China already having a stake in Turkmen gas and being able to help Pakistan as their partner in the China-Pakistan economic corridor. The benefit of this pipeline would be giving Turkmenistan another market to enter, as well as additional revenue for both supplier and transit countries. The main challenge to TAPI, however, is the continuing instability in Afghanistan and the tense Pakistan-India relations.

The very long pipeline projects, which go through geographically tough and security-problematic terrain, have price tags comparable to large-scale LNG projects. For example, the Southern Gas Corridor consisting of connecting three interconnected pipelines is estimated at $45 billion dollars. Pipelines are financially competitive with LNG, and the gas price is often cheaper. However, piped gas’ biggest advantage is simply the fact piped natural gas can be supplied in larger quantities in a shorter amount of time to fixed locations. The disadvantage for supplier is dependence on the market.

To conclude, Azerbaijan, Russia, Iran, Kazakhstan and Turkmenistan are in prime locations to take advantage as suppliers to energy-starved countries with large populations in the Eastern hemisphere. Their lack of an ocean coastline does not have to hinder the ability of Azerbaijan, Turkmenistan and Kazakhstan to export gas, as long as the necessary investment and security cooperation is in place. In their current situation, these countries, in conjunction with the OBOR initiative, could make significant strides in becoming major suppliers.

The OBOR initiative can help these gas-rich nations compete and succeed, providing environmentally sound fossil energy for the 21st century — until such time the renewables become economically competitive.

Ariel Cohen, Ph.D., is Senior Non-Resident Fellow at the Atlantic Council; Principal, International Market Analysis Ltd, a political risk advisory (www.IMAStrategy.com), and Director, Center for Energy, Natural Resources and Geopolitics at the Institute for the Analysis of Global Security (www.arielcohen.com) Image credit: CC by NPCA Online/Flickr.

Russian Dissatisfaction with China and Its Limits

Written by Gilbert Rozman.

After a period of euphoria about Sino-Russian relations in 2014 and the first half of 2015, Russians have begun to express rather more sober judgments, if not direct criticism of China over the past 6 months. The massive investments once anticipated from China have failed to reach Russian companies. The link-up of the Eurasian Economic Union and the Silk Road Economic Belt has bypassed the vital Russian Far East and left in doubt cooperation in Central Asia. Putin and Xi may keep following parallel tracks, but they are refraining from endorsing each other’s assertive moves in the South China Sea and East Europe respectively. Some observers see an opening for splitting China and Russia, arguing that the national interests of the two are really very much in conflict and that Russia’s civilizational claims and insistence on an autonomous role in a multipolar world will lead it to seek a balance of power, above all in Northeast Asia. There and in Central Asia, Russia’s interests could eventually be imperiled due to overdependence on China, some argue. Recent signs of Russian dissatisfaction with unrealized aspirations reinforce such wishful thinking abroad.

The problem with such reasoning is that it does not lead to an alternative scenario for Vladimir Putin’s quest for international power (in a strategic triangle or some similar configuration) and national identity (restoring the essence of Soviet glory). Given U.S. hostility to Putin’s ambitions to use force or a threat of force to establish a sphere of influence and China’s unwillingness to credit Russia as one of three poles in the international order, Putin has no realistic path to geopolitical leadership. In the absence of a path to triangularity, his strong antipathy to the United States and repeated view that China and Russia have no serious conflicting interests can only lead to doubling down on ties to China. The significance of China for Putin’s popular construction of Russian national identity is indisputable too. Putin is obsessed with the national identity gap with the West and the United States, refusing to allow any repeat of the identity chasm with China that opened as a result of the Sino-Soviet dispute. Overlapping narratives about the history of past communist movements and communism in the Cold War, about the danger of “universal values” and “colour revolutions,” and about the urgency of rallying the world against the alliances and security framework led by the United States, all affirm Putin’s alignment with Xi Jinping. There is no sign that Putin will reconsider his choice of China, and if he did, where he might turn to realize the objectives that he has pursued in ties to China.

Options for Balancing China?

The line of argument that Russia is seriously considering turning to other countries to balance its relations with China lacks hard evidence and is premised on vague and unexamined assumptions. The list of possible balancers in Asia includes India, Vietnam, Japan, and North Korea; however, it is hard to understand what balance—geopolitically or geo-economically, and even more geo-culturally—Russia could achieve with any one of these states. India has stopped looking to Russia as more than a secondary force in balancing China. Recently, Russians have strained to find optimism in India working with China as well as Russia in an expanded Shanghai Cooperation Organization, while saying very little about using India as a balance against China. Vietnam buys Russian weapons, but it counts on Russia for little else. As in the case of India, Russia finds nothing to praise in US ties to one of Russia’s partners or to some wider regional support for its strategic interests. The options of Japan and North Korea, which Russia has been pursuing actively, have opposite implications. A breakthrough with Japan would hint at multipolarity at China’s expense, but it likely would not be transformative. A special relationship with North Korea would, in contrast, showcase Russian autonomy, but it too would not be likely to challenge China seriously, as I explain below. With Northeast Asia in the forefront since that is where Russia is actually present and the interests of four great powers intersect, Russia’s interest in Tokyo and Pyongyang warrant the closest scrutiny.

As Putin prepares to host Abe at Sochi in about one month, some Japanese speculate that this could be a game changer for Sino-Russian relations. Yet, they offer no detail on what Japan would offer Russia or how it may compare with what China has been offering. Given Japan’s tightening alliance with the United States and eagerness to build a strong missile defense system, which Russia keeps warning is against it, the geopolitical payoff from a peace treaty and territorial settlement with Japan is not likely to be great. As over the past quarter century, Russia’s economy is too troubled to expect substantial Japanese investment, even if an LNG deal should be reached. In comparison to Chinese infrastructure and investment ties, Japan offers rather little. The argument that some sort of civilizational affinity would be realized between the two is even more far-fetched after a century of mutual distrust. If Putin and Abe were able to reach a breakthrough agreement, it would be very unlikely to alter the direction of Russian foreign policy in the Asia-Pacific and its strong ties to China.

North Korea has loomed in Russian narratives as a piece in a triangle with South Korea, leading to a transportation and energy corridor as well as regional partners of exceptional importance. At the same time, it serves as a lever to intimidate South Korea, given the implied threat of closer ties to the North to the extent that ties to the South do not serve Russia’s purposes. Yet, South Korea’s decision in early 2016 to sever economic ties to the North and Russia’s reluctant agreement to join in the Security Council sanctions against it leave this strategy in shambles. To draw close to North Korea now would isolate Russia rather than balancing against China or any other country. Without promise of this triangle, Moscow’s relations with Seoul have been exposed as having very limited prospects. Talk of Seoul’s Eurasian Economic Initiative has disappeared. Sticking close to China in North Korean policy seems to be the only serious alternative for Russia left.

Conclusion

Putin’s “Turn to the East” is overwhelmingly a turn to China. Despite disappointing economic results in Sino-Russian relations during 2015 (partly due to the sharp fall in commodity prices and to the slowdown in China’s economy), Russia has failed to present a geopolitical logic, an economic blueprint, or a national identity rationale for balancing China. The Asian countries mentioned as possible alternatives if such a balancing approach were attempted all have little to offer Russia. Doubling down in cultivating closer ties with China is a more likely response to disappointment than deciding that national interests diverge enough to seek to balance China’s power.

Gilbert Rozman is the editor of The Asan Forum and the Emeritus Musgrave Professor of Sociology at Princeton University, specializing in Northeast Asian societies: China, Japan, Korea, and Russia. He has compared them, most recently concentrating on national identities. In addition, Rozman works on sociological factors in international relations, emphasizing mutual perceptions and barriers to regionalism. Image credit: CC by Martin Svalin/Flickr.

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