Country Report: Russia (March 2016)

Editorial Staff (with the assistance of Olga Puzanova)

Vladimir Lukin, after explaining shortcomings of the United States, wrote in Rossiia v Global’noi Politike, no. 1, about his conceptions of China and India. He praised Deng Xiaoping for controlling China’s not inconsiderable foreign ambitions to devote all energies to resolving severe domestic problems. Over the following three-and-a-half decades, China lost not in the least its independence and sovereignty, while succeeding in improving relations with all countries on which its economic development depends. In cases of potential conflict, it took a quiet, stage-by-stage approach, considering a long-term, strategic perspective. As a result, today the People’s Republic of China (PRC) has more possibilities in foreign affairs, although it still does not rush into complex, crisis situations. Through these decades, China has kept a balanced approach, Lukin argues. Turning next to India, he finds that only after the Cold War did it orient itself to development, making severe territorial problems with Pakistan and China secondary concerns while focusing on becoming a powerful and economically effective force. Lukin credits it with finding the optimal balance between national interests and global projects, praising its potential and preconditions for the long run. India’s wide use of the civilizational achievements of the West has not interfered with its sovereignty, but has actually assisted in strengthening it and preserving national unity, Lukin concludes.

 

Adding to these cases as lessons for Russia, Lukin contrasts old Germany battling for greatness and losing everything with new Germany, strictly adhering to balance and achieving in Europe almost everything it wanted. As for Russia, he finds it at a point similar to where it stood at the start of the nineteenth century, as a sizable part of society is searching for some kind of “all-conquering” idea. Lukin traces the origin of this to the lack of realism in Gorbachev’s “new thinking,” which opened the way to the West to make one-sided gains in Europe, which, in turn, aroused an anti-West reaction in Russia accompanied by isolationism and claims of exceptionalism. This has not been constructive but destructive for Russia’s long-term interests and the thinking of the broad masses. Now, Russia’s elite needs to work out a course for sustained pursuit of national interests, which he considers still possible. Concluding that Japan was successful in learning from its mistake when it confused dreams with strategy, he is focused on changing Russia’s course, repeating the words “quiet” and “balanced.”

 

In the same issue, Iakov Mirkin warned about foreign policy too extreme for the economic realities of a country, contrasting China’s 15.5 percent of the world economy with its 2.7 percent in 1980 and with Russia’s 1.7 percent, having fallen from a peak of 2.8 percent in 2013. Mirkin argues that Russia is in an economic crisis, according to many indicators, and suffers from severe weaknesses of state domination, overconcentration, and little developed small and medium business. The biggest problem, he adds, is not financial sanctions but the prohibition on supply of equipment and other critical imports, which Russia cannot provide for itself after falling into a state where it buys technology but is unable to make it as its machines age. He discounts turning to China for technology, dismissing its level as dated and doubting China due its strategic dialogue and close trade ties with the United States. Noting that China’s share of Russia’s trade only rose from 10 to 11.7 percent over the past year (as the volume fell by 30 percent) and that Russia runs a big deficit (3 billion in the first 8 months of 2015), Mirkin charges that Russians are working for China and not the other way around as Russia seeks billions to supply more raw materials to China for its manufactured goods. This is the reality, he warns, while adding that Japan and South Korea are not the solution, since they are US partners who will limit technology transfers to Russia.

 

Mirkin further criticizes Russia’s financial realities—little money, little investment, and a deformed system unable to support rapid growth and modernization—and the militarization of the economy (4.5 percent of the gross domestic product (GDP)); aviation and shipbuilding are dominated by the military sector with little civilian production, risking a repeat of the 1980s’ one-sidedness. A strong dollar is correlated with low prices for what Russia exports, which are likely to last to 2020-21. Mirkin paints a picture of little growth for 5 to 10 years, deindustrialization, and stagnation, estimating the chance of a sudden turnabout at just 5 to 10 percent. He appeals for a new Russian foreign policy with Asian states Japan, China, and South Korea, as well as Germany, as partners in improving the quality of the Russian economy, not measured by the strength of armies but by exchanges of knowledge, technology, and high-valued production. The thrust is renewing integration with the European Union and reaching more widely in Asia.

 

Sergei Karaganov in the January 11 Rossiiskaia Gazeta wrote that the West is becoming accustomed to the new reality of respecting the interests and rights of Russia, claiming that 2015 was one of the most successful years in the history of Russian foreign policy. His narrative is that Russia’s vital interests were threatened, Russia was under pressure, and it stood its ground, thus gaining respect. The result in 2015 was the collapse of the foundation of the de facto domination by the West and its political views, which had not brought peace and stability to the continent. Karaganov adds that important steps were taken in Russia’s “turn to the East.” In conditions of overall economic decline, the share of Asiatic markets in Russian trade rose. He especially praises the Sino-Russian agreement on joining the Eurasian Economic Union (EEU) and Silk Road Economic Belt (SREB), potentially opening across Central Asia and adjacent regions of Siberia as well as western China enormous possibilities for a new center of economic growth. But to proceed from promises to results, he calls for systemic bureaucratic forces, which since the agreement was signed have been scarcely visible. Karaganov calls for concrete projects, doubling down on the role of the state as the driver in economic relations linked to geopolitics. Blaming the West for needing an external enemy for internal consolidation and for trying to rescue a collapsing world order they had failed to construct since the 1990s, he challenges any dreams of integration with the West, insisting that to protect Russia’s sovereignty and independence the antagonism will continue for a long time. He urges Russia to awaken from the danger of economic stagnation, which worries friends like China that it will return to the course of the 1990s. It should not celebrate its successes in 2015, he adds, because it lacks the economic power, technological level, and quality of human capital to advance. Praise of recent policy is combined with appeals for some major changes.

 

The Shanghai Cooperation Organization (SCO)

Also in issue no. 1 of Rossiia v Global’noi Politike, V. Ia. Vorobyov wrote about the SCO entering its fifteenth year, insisting that China’s ideas should not be construed as contradictory to it. With six members, six observers, and six partners in dialogue, the SCO has advanced far and at the Ufa summit of July 2015 framed a strategy of development to 2025. Yet, Vorobyov bemoans that this was a status quo document indicating inertia rather than innovation and responses to serious challenges. The expansion of the SCO to include India and Pakistan (still in the former status until the full process of entry is completed) is welcomed, but the author calls for a shift from broadening membership to defining a strategy for not losing the main focus on Central Asia and overcoming concerns there. Vorobyov notes that integration of new members is always difficult, carrying risks of weakening the strength of the group, complicating the pursuit of rules and consensus. One task ahead is to specify the linkage between the SCO and the Silk Road Economic Belt, which has recently grown from 40 to 70 states with over 4 billion residents. Xi has also expanded the nature of the belt from infrastructure to a “community of one destiny,” as China steps into the arena of global projects. The realization of the belt should not be seen as in any way at odds with the SCO, Vorobyov adds. They are fully compatible, but there is a need to strengthen the SCO and prepare it to participate in the realization of the idea of the new belt. Left unstated are fears the author seems to have about what will happen to Central Asia as it loses centrality and what is meant by the complementarity of the SCO and the Silk Road Economic Belt, when any concrete examples of how the two will work together are still missing.

 

Trans-Pacific Partnership (TPP)

Aleksei Portanskii, also writing in the first issue of Rossiia v Global’noi Politike, views Sino-US relations as troubled by the US use of TPP to exclude China and pressure it before it could gain entry and by clashing strategies in the South China Sea. However, he concludes that China will use restraint thinking above all about its future economy and not about its readiness to deal a military blow to the United States. Eventually, he also expects the Transatlantic Trade and Investment Partnership (TTIP) to go forward and draw in countries close to Russia. Much of the article is on how Russia should respond to these challenges, criticizing how the Soviet Union reacted to the General Agreement on Tariffs and Trade (GATT) and seeing parallels in its farcical propaganda and the rhetoric now being heard. Recognizing that Russia is not ready to enter these groups and would fail to establish a “symmetrical answer” (the EEU in its first year failed to realize the hopes raised, e.g., trade within it declined by more than 25 percent over the first half year), Portanskii discounts the SCO and ASEAN as partners, asserting that they would not be interested. Besides, he warns, China is intent on playing the key role in the Silk Road Economic Belt and is more concerned about cooperation with TPP, while ASEAN states are either in TPP or expressing interest in joining. The article concludes that Russia must adapt to reality—find common ground with TPP.

 

Sergei Afontsev in this issue also called for not panicking about TPP, objecting to the recent rhetoric about a closed and confrontational response and to complaints that Russia and China were not invited to join the TPP talks. He observes that they were not ready to join and they are not interested in standards that protect investors and raise ecological and labor protection. He projects that in three to five years China will start talks to join, but he doubts that it can accept this US-initiated project. Instead, it will seek less inclusive groupings, including the “new Silk Road” to supplement moves in the Pacific. In these circumstances, he advises, Russia should avoid short-term plans promising quick political payoff, which has been its approach, and proceed, as it has with Vietnam and might with some of its neighbors, to forge bilateral free trade agreements (FTAs) with the EEU. These could be useful partners in technological cooperation under sanctions.

 

Vladimir Baronov wrote in Mezhdunarodnaia Zhizn’, no. 2 about TPP and its potential effect, arguing that, as in the case of TTIP, the domineering role of the United States would enable it to maintain its leadership in world trade in goods and services and in the international flow of capital. He adds that if one counts the Japan-EU FTA, as much as 80 percent of global trade would be included—enough to make these groupings a counterweight to the World Trade Organization (WTO) and to open the possibility of the United States dictating the conditions of trade in the world economy. Baronov views TPP as joining together what would be a powerful force in world trade and foreign direct investment, striving for trade liberalization with the removal of tariff barriers and increased transparency. Two important elements are the regulation of state purchases and the protection of intellectual property rights, adds Baronov. One objective is to increase the US role in the Asia-Pacific region, serving its geopolitical aims as well as strengthening political ties with East Asia. Another is to isolate China, reducing its trade ties with member states. TPP would limit the sovereignty of states in setting legal norms and practices, he says. The big winners would be the United States and Japan, while developing countries on the outside would be losers, including from monopoly pharmaceutical prices. Unlike what is being said in the US presidential campaign, widening inequality would work in favor of the states with the highest standard of living, Baronov concludes, before adding that American workers would suffer because jobs would go to cheaper labor abroad. Baronov does not see Russia losing much, since none of its top five trading partners are in TPP and energy and natural resources—its main exports—are not regulated. The fact that Russia and Vietnam will have a free trade zone also limits the impact of TPP.

 

Varvara Remchukova on January 26 in Nezavisimaia Gazeta also took a close look at the TPP document and plans, finding there a blueprint for institutionalized homogeneity in the economies of the member countries. She notes that private business will be favored by eliminating preferences for state enterprises. Citing various exceptions won by the United States to the openness and free trade claimed, she explains that other states made concessions to strengthen their positions in very attractive segments of the US market. While critics of TPP often call it anti-China, the text of the agreement, according to her, allows it or Russia to apply for entry. Yet, she points to barriers that would not allow their present state economic policies and boosterism of “national champions” to be acceptable. This straightforward explanation of TPP contrasts with Baronov’s far more critical interpretation, suggesting different views of how Russia should respond and how urgent economic reform is for Russia in order not to be left on the sidelines.

 

Russia-Japan Relations

Anatolii Torkunov in Mezhdunarodnaia Zhizn’, no. 2 examined the parallel histories of Russia and Japan, countering the dark view that their relationship has been more negative than positive, including three times fighting each other in the twentieth century. Noting that in the late nineteenth century Japanese intellectuals were attracted to Russian culture and considered Russia Japan’s teacher and that leaders found compromises at critical moments to avoid conflict, he praises the recognition in the post bipolar period of the exceptional importance of good relations to serve each side’s national interests as they expanded cooperation into almost all areas. Yet, Torkunov notes that unresolved problems from the past complicate relations, mentioning prisoners of war (POWs) and the territorial issue. He argues that Japanese feelings of humiliation are not helpful for relations, but he finds hope in the fact that only the border demarcation persists as a legacy of WWII, which so far has not been resolved due to its complexity and emotional nature linked to clashing evaluations of the war and its results.

 

Torkunov proceeds to argue that on a majority of problems in international politics, including the nuclear problem on the Korean Peninsula, the positions of the two countries are close or fully coincide. Neither sees the other as a military threat, and, while Japan joined the 2014 sanctions of the West it continued dialogue, in 2016 it is hoped that the top leaders will meet and Putin will visit Japan. Torkunov hopes that Japan will recognize Russia as a partner in establishing a security system in the region. Citing a book that appeared in Russian and Japanese in 2015 on bilateral relations based on parallel work of historians and political scientists over three years, he praises the joint commission of historians studying delicate questions of the history of bilateral relations, overcoming expectations that clashes of opinion would undermine the effort and its objectivity. He notes the examples of Russian authors’ coverage of the POW issue and Japanese authors not just parroting the official line on the border but showing the reasons for its formation in the 1950s. Torkunov concludes that they found a common language as they conveyed parallel coverage of the same events and still achieved dialogue. Thus, both sides better understand the differences between them. He stresses the importance for Russia’s economy of advanced Japanese technology in energy, medicine, and urban infrastructure, observing that the book had sparked enormous interest in Japan. Optimism of this sort builds a foundation for anticipating progress in bilateral talks during 2016 is the final message Torkunov delivers to his readers.

 

Russia-India Relations

In the same issue of Mezhdunarodnaia Zhizn’, Gleb Ivashenstov appraised the Russian partnership with India, looking back over the past quarter century since India’s policy of economic reforms set its economy on a course among the “most dynamically developing in the world.” Praising its astounding successes, he also notes problems restraining its further development, not just reliance on oil imports, shortages of energy, and lack of water resources, but also severe inequality. He sees the emergence of Modi and the Bharatiya Janata Party (BJP) as a result of problems, such as a slowdown in economic growth, and the cause of a broad set of domestic initiatives, but not of a shift in the direction of foreign policy. As in the past, India seeks to become one of the leading world powers—now on the basis of powerful economic, scientific and technical, and military potential. As his predecessors, readers are informed, Modi supports good relations with the West, including the United States, however not endorsing Western globalism, and continues strategic cooperation with Russia and China, strengthening ties within the framework of the BRICS and in 2015 joining the SCO. This is an optimistic account of Russia’s relations with Modi.

 

 Ivashentsov sees tensions between India and China as a thing of the past, especially after Modi’s “triumphal” visit to China in May 2015, when 24 agreements were signed totaling USD 10 billion. New Delhi is working with China now to neutralize its conflict with Pakistan and with other states on the subcontinent, which have often played the “China card” against it, while Beijing increasingly avoids taking their side. Noting that India is strengthening ties with many countries on the eastern side of the Indian Ocean, the author argues that this does not have to be cover for forging an anti-China alliance. Pointing to the serious security situation emerging in this ocean, he blames Washington for trying to arouse fears of Chinese expansionism with the aim of surrounding India, but he credits New Delhi with refusing to cooperate since it does not really have any differences with Beijing on maritime issues. In turn, China insists that its interests are economic, as seen in its pursuit of the “Maritime Silk Road,” contradicting Western propaganda that its aim is to take control of ports along the way. Commenting that India has the opportunity to play a big role in this project, he sees it declining to do so to date, although many Indian experts favor such cooperation. He even warns that India might be left isolated if it continues to desist. For those who claim that Russia is looking to ASEAN or India to balance China, the message here is precisely the opposite.

 

Ivashentsov considers Indo-US relations to have been unstable, with Washington not viewing India as an influential state, but matters changed from 2000 as India loomed as a counterweight to China and a vast market. While Russia is not the Soviet Union and is not seen as in the same league as the United States and China, history shows that India’s interests on a global and regional scale more often correspond to Russia’s interests, not to those of other great powers, and that Russo-Indian relations have independent value, he argues. One commonality cited is standing against dictates from the West on world affairs as both strive for a multi-centric international order. Another stems from Russia’s view that an increased role for India in the Middle East, Central Asia, and East Asia would reduce the foreign challenges for Russia. Also noted is that India traditionally is understanding of Moscow’s role on the international arena, e.g., when the Soviet Union sent troops to Afghanistan; now it is not joining the chorus condemning the joining of Crimea to Russia. It opposes all sanctions, and Modi’s December visit to Moscow shows that isolation of Russia is failing, while raising the prospect of an FTA between the EEU and India. A unipolar world is unacceptable to India. Ivashentsov also stresses that India is decidedly in favor of cooperation with Russia in energy, arms, atomic energy, space exploration, aviation, and etc. He insists that the West is not rushing to transfer their know-how to India, while Russia is leading the way in realizing “Made in India,” as in the construction of jet fighters and tanks and plans for the fifth-generation fighter, rockets, helicopters, and atomic reactors. Yet, the author concedes that trade does not reach even a paltry USD 10 billion and investment is meager on both sides. Private sector ties were long neglected as state dealings prevailed. Even so, this is an upbeat account of a very strong relationship getting even stronger, sometimes in league with China and nourished by a shared opposition to US objectives. This is not the story of India found elsewhere.

 

Russia-China Relations

On February 2, Ol’ga Solov’eva wrote in Nezavisimaia Gazeta that China is not rushing to invest in Russia even as it increases its investments elsewhere by 14 percent in 2015. She remarks that Chinese business, unlike Russian firms, takes a long-term approach and reports on a survey of 60 Chinese firms and organizations present in Russia, of which about 60 percent pointed to macroeconomic instability as the main barrier. They are cautious due to heightened currency risks. About 40 percent were hesitant due to the way laws are applied, and about one-third cited a loss of purchasing power of Russian consumers. More than 70 percent pointed to natural resources as their main interest, but fewer than 30 percent focused on interest in Russia’s internal market. Even so, despite the crisis, 57 percent plan soon to widen their geographical presence in the Russian market with possible total investments of USD 6 billion—a sum lower than in 2014. The article reminds readers of two projects that could include the Chinese—an energy bridge to Crimea and a high-speed railway between Moscow and Kazan’, but it stresses recent refusals to invest such as the January decision by Chinese to reject a proposal to invest USD 6 billion in construction of new subway lines and property around them in Moscow, which had been raised in 2014. Solov’eva quotes one Russian as saying that little can be expected from Chinese, who often spend 10-15 years discussing a project. Mention is made of a difference in mentality between the inhabitants of the two countries—Chinese look for projects where they can supply their own goods and labor. They are waiting for the crisis to hit bottom and looking for something in return for their investment, such as technology to be transferred to China. Much is being written about an exodus of Chinese from Russian stocks, although this claim is being contradicted with insistence that the money has been reallocated within Russia. Even so, the article concludes that Russia has no way to replace Western credits with those from China and even that Chinese banks are abiding by the Western sanctions against China despite saying the opposite.

 

In Kommersant on January 14, an article warns that China is proceeding slowly in its economic ties with Russia, listing China’s slowdown with falling oil prices and Western sanctions as the three sources of risk for Russia’s economy in 2016. This could make the recession in Russia deeper due to the long-term decline in prices for raw materials, readers learn. While Russia will not be hit so much directly, the overall impact of China’s reduced demand for resources will lower prices and reverberate in its economy.

 

Oleg Timofeev reported on russiancouncil.ru on the material of Elena Kuz’mina and Aleksei Fenenko concerning drawing the EEU and Silk Road Economic Belt together as well as the presentation of Vice-premier Iurii Trutnev at the Davos forum to discuss how the Russian Far East can be integrated into a larger region. The analysis made clear that the Chinese priority for the Silk Road Economic Belt is the western transportation route via Central Asia passing Urumchi in Xinjiang as well as Xian and Lanzhou, and heading to Kazakhstan. That leaves as the alternatives for Russia Almaty-Orenburg-Kazan’-Moscow-Petersburg-Europe or China-Mongolia-Russia. The article claims that the Sino-Russian agreement on joining these projects included crossings at Grodekovo-Suifenhe and Zabaikal’sk-Manzhouli with others as well—the eastern vector of the SREB with Northeast China transit through Pacific Russia and Siberia. This took into account the lack of export corridors from Northeast China with promise for the Russian Far East and use of the Trans-Siberian railroad and the ports of the Primorsky region. Timofeev adds that the advantages of the eastern route are substantial in lowering transport costs and increasing security of shipments and that China would make use of the Free Port of Vladivostok as the major logistical center of Northeast Asia. Apart from the concern that China is not giving sufficient attention to the eastern vector, Timofeev points to factors complicating its realization: competition for participation in the project from Japan and South Korea, but Washington in light of the geopolitical situation in Northeast Asia may block participation of its allies in the project; and bureaucratic obstacles and Russian legal inadequacies and corruption. Reminding readers of Chinese statements in support of the eastern route, the author stresses its advantages without criticizing China directly or explaining in any detail the factors that are actually complicating this vital initiative.

 

On January 23, TASS reported on how Russia showed the West at Davos its “turn to the East,” presenting projects in the Russian Far East to investors even as the year had begun with a spate of gloomy economic news around the world. The article asserted that the “turn to the East” was the result of the deterioration of Russia’s relations with the West over Ukraine in 2014 and the economic sanctions that had deprived Russian companies and banks of borrowing money on Western capital markets. In turn, Russia over the past two years has pursued new markets for itself in the Asia-Pacific region and the Middle East, signing a series of multi-billion dollar contracts for investments in infrastructure and agriculture. Trutnev stressed the importance of the Russian Far East in the “turn to the East,” while another Russian official expresses skepticism about the development of relations with China, doubting that Chinese partners have much interest as if this is due to their pragmatism. As compensation, perhaps, Trutnev spoke hopefully about recent EU officials’ remarks that they were inclined to soften the sanctions on Russia as many businesspeople in their countries are demanding.

#EEU #Russian Far East #Silk Road Economic Belt #Sino-US Relations #TPP