Country Report: Russia (March 2017)

  • Editorial Staff (with the assistance of Olga Puzanova)

On February 10, the Ministry of Foreign Affairs carried an Interfax interview with Deputy Foreign Minister Igor Morgulov on Russian Asia policies in the past year. He cited as the biggest event the May Sochi summit with the members of ASEAN. A second important event was carrying the entry of India and Pakistan into the SCO to the “finish line,” with possible entry in 2017. The third success he noted was the second Eastern Economic Forum in September in Vladivostok, where Abe and Park brought their countries closer to realizing large-scale projects in the Russian Far East. Also noted was Putin’s participation in the November APEC summit in Lima. Mention is made too of progress toward Greater Eurasia with the EEU, SCO, and ASEAN. While brief mention is made of a Sino-Russian agreement in November, more stress is placed on the Russo-Indo-Chinese troika. When pressed on joint economic activities with Japan, Morgulov mentions fishing and marine products, infrastructure, energy, construction, ecology, medicine, and tourism, as each side begins by listing potential projects on the islands, then discusses the legal basis for proceeding, which, he adds, must be in accordance with Russian law. The result of success here would be a positive atmosphere for searching for a resolution to the problems of concluding a peace treaty. Asked about the danger of increased tension over the DPRK, Morgulov responded, blaming the DPRK and its opponents who use its actions as a pretext for introducing new types of weapons into the region. He calls for a broad approach to the Korean Peninsula—denuclearization can only be achieved in the context of reduced confrontation, which Washington will not accept. In making this argument, Morgulov obscures Russia’s thinking about what would persuade Pyongyang, but presumes that it is ready to denuclearize on terms that Russia would find acceptable. This does not reflect the growing sense of threat of a nuclear attack or nuclear blackmail in the United States, any seriousness in treating the objectives of North Korea, or even the idea that the danger of conflict is growing rapidly. Somehow, Russia is assumed to be a force of reconciliation between the two adversaries without any clarity of how it can exert influence over North Korea. The claim is that Russia is ready for constructive cooperation in the interest of talks, but Washington and Pyongyang are not, ignoring repeated US efforts to restart talks.

In Mezhdunarodnaya Zhizn’ Morgulov elaborated on his positive evaluation of 2016 for Russia’s Asia policies, stressing Russia’s importance for the region as regional architecture for the future and rules of the game are taking shape. Successes with ASEAN, China, and India are showcased. Striking for the brevity of his remarks and absence of any sense of optimism for a peace treaty are his comments about Japan. There is no sign of serious expectations for progress with Japan during 2017. As for the Korean Peninsula, there is only talk of potential cooperation with South Korea with little candor about the nature of the problems, and emphasis on the value of the relationship with the DPRK, drawing on long-standing and firm ties of friendship and respect for their joint history. The problem cited is not nuclear weapons or the threats from North Korea against regional stability; the military-political situation on the peninsula is at fault for declining trade and frozen triangular infrastructure projects with South Korea. Stress is placed on Pyongyang’s awareness that Russia is interested in overcoming the current difficulties in the region; i.e., it can trust Russia to have its interests in mind and, apparently, seek resolutions supportive of them. One notable shift of late is to concentrate more or ASEAN and the whole region, not on China exclusively, as was the pattern for at least the past several years.

On January 30, Oleg Larin wrote in Evraziia Expert on what China’s integration of Asia might be like following the demise of TPP. With one stroke, Trump killed the “economic NATO of Asia” aimed at containing China, Larin said. TPP is depicted as protectionist with great potential to harm the trade and investment climate of the EEC. In TPP’s place China is leading discussion of other free trade projects, with more opportunities to forge multilateralism and be the leader, but other states will be wary due to the possibility that China would establish economy hegemony in the region. Instead, China has good prospects to widen economic integration with the states of the EEU, linking it with the Silk Road Economic Belt. What is odd about this article is that it points to other countries with more economic dynamism than Russia being fearful of China’s hegemony and blithely assumes that this is not a problem for Russia or the EEU states.

In Nezavisimaya Gazeta on February 27 Iurii Tavrovskii asked if Donald Trump is a student of Xi Jinping. Xi began four years earlier with the “China Dream,” and Trump has followed with “America First.” Their programs have a lot in common. Each sees a past of humiliating weakness and a future of a powerful civilization through less dependency on the outside—a revival of their nation and of conservative values accompanied by a doomsday scenario for the country if this is not done.

In Rossiya v Global’noi Politike, Sergei Karaganov pointed to 2016 when the West lost unipolarity, as others have pointed to the end of the Cold War when bipolarity ended. He adds that Russia does not feel it lost in the former shift because it made its own decision to end the era, while Russia now is the winner because it was more decisive as Asia’s rise and the breakup of the EU contributed to the transformation. He calls Russia a catalyst in this process, which will lead to a more just and balanced world order. The US global, ideological elite lost. For Karaganov Russia’s turn to the East is a big factor in this victory. He sees a string of successes in 2016: Siberia has become the driver of development; the proportion of trade with Asia continues to grow to the point that in five years dependence on Europe will be balanced; the Russia-ASEAN summit laid the foundation for a sharp expansion of trade with a group of fast-growing countries; an agreement to build a gas pipeline to India is heralded as is progress on a project for a rail line to Iran, India, and the Persian Gulf; negotiations have begun between the EEU and SREB on a non-preferential FTA after an agreement for an FTA was signed with Vietnam; success in relations with Japan came with agreement on economic cooperation in both the Russian Far East and the Southern Kuriles with benefits for geopolitical ties since Japan de facto has left the Western front against Russia and is anxious for balance against Chinese domination; and Putin’s idea of Greater Eurasia from Tokyo to Lisbon has official status as well as endorsement by the leader of China. Karaganov’s triumphalism is unmistakable.

In Mezhdunarodnaya zhizn’ , Vladimir Lukin reviewed the post-Soviet search for identity in Russia. He scoffed at the search for a “national idea,” even discounting the claim by Putin that this is “patriotism” as too vague to serve as an answer. Defining the concept, he noted the importance of treating identities not as contradictory to each other but as distinctive, and he described identity as the foundation on which a basic national strategy is formed or else foreign policy maneuvers are bound to be ineffective. Lukin argues that the past decades have been full of attempts to define new Russia as the direct successor and heir of the USSR, to the point that escalation of the Soviet matrix keeps being felt more strongly, while leading to foreign policy problems when Russia assumes responsibilities from dark Soviet times that should not concern it. He cites reactions to the handling in the press of Katyn’, mass resettlement of peoples, and some aspects of the Stalinist interpretation of the Yalta and Potsdam agreements, which became an important factor in why the Cold War arose. This matrix, he adds, is destructive and counterproductive in dealing with the rapidly changing world, having a masochistic effect on how Russia is perceived. The effect at home is to steer Russia’s political elite to strategic dreams oriented to the geographical parameters of Stalinist USSR after the war—whether to the Warsaw Pact area or to Russia and the former republics—for which resources do not exist and neighbors are resistant. Abroad, it arouses others to perceive a new cold war.

Lukin traces Russia’s challenge to the middle of the 19th century, when an imbalance became discernable between the needs of modernization—intensive development through reform—and the demands of building and holding an empire—extensive development and control. This, he argues, is what today’s struggle over national identity also must resolve. As positive examples of countries overcoming similar hurdles, he cites China from 1978—prioritizing a market economy and the right external atmosphere for reform through an identity shift—and Germany after 1945. One of the greatest world civilizations was able to overcome its deep crisis, he adds in reference to China, was able to set aside elements of national consciousness not amenable to modernization and to break decisively from Maoist foreign policy. In doing so, Chinese departed from confidence in the superiority of their own culture from time immemorial and the tendency to teach others rather than learn from them. In contrast, Lukin faults Russian mythologizing of figures of the past for not taking a balanced and future-oriented approach. He calls instead for seeking harmony between Russian, European, and global factors and asks if universal rights can be combined with a unified, multi-national state, which is open and not isolated from Europe. This is an appeal to rethink national identity as well as foreign policy. This is pushback against the hyperbolic optimism voiced by others as 2017 began.

Also concerned with identity is Aleksei Malashenko’s article in Rossiya v Global’noi Politike on dialogue between West and East. He notes the view that the West is one, whereas the East is diverse. He also asserts that the majority of Russian citizens regard themselves as part of the West, i.e., Europe, not the East. Does this make Russia a sub-civilization of the West? Talk of Eurasia in between East and West complicates the picture, readers are told, leaving in doubt how to find common ground with the West and fueling anti-West attitudes in Russia.

Japan-Russia Relations

In Izvestiia on February 14, former ambassador Evgenii Afanas’ev wrote about the state of Russo-Japanese relations, calling Japan a natural partner of Russia in the Asia-Pacific region. He praised the effort to have good-neighborly relations with the world’s third economic power known for scientific and technological achievements and eager to broaden its political role in world affairs. He also welcomed the upbeat relationship in 2016, when Putin and Abe met four times. Asked whether Japan will offer investments in exchange for the transfer of two islands, Afanas’ev responded, “no,” adding that Russian does not barter over territory and that this issue cannot be resolved in a short period based on closed consultations—patience is required with no need for fantasies and speculation. Calling Putin’s December visit a success, he explained that important agreements on cooperation were reached, including steps to make concrete Abe’s 8-point economic proposal, details on talks regarding a peace treaty, and the start of consultations for joint economic activity on the islands along with simplification of procedures for former residents visiting the islands.  In his view, a powerful impulse was delivered for raising bilateral ties to a qualitatively new level, putting economic ties in the forefront after recent negative trends with projects discussed by the two leaders as the driving force. Russia is ready, he adds, awaiting Japan’s agreement to pour money into the Russian economy without any acknowledgment of the unfavorable economic conditions that have prevented that.

Afanas’ev exaggerates the cultural closeness of Japan and Russia, repeating once credible notions of high mutual interest in each other’s culture, although on the Russian side he is correct to note that Japanese restaurants have spread widely in major cities. Acknowledging interest in Russia from local Japanese newspapers, he faults them for fueling prejudice and stereotypes, blaming sources in the West. However, he says nothing about the negative conditions that arouse such criticism or what Russia should do to improve its image in Japan.

Asked if the Abe-Trump meeting in February will lead to anti-Chinese actions and how Russia would respond, Afanas’ev asserts that Russia is committed to cultivating ties to China in the widest specter of directions while also supporting stable ties to Japan and other players in the region. There is no sign of any priority for Japan. This bland expression of hope for Japan-Russia relations is devoid of details on problems to resolve, raising false hopes about economics and culture as the key driving forces.

In contrast, a January 31 article in gazeta.ru focused on Japan’s geopolitical place between Russia and the United States. Dar’ia Zorile and Valentin Loginov wrote that in meeting Trump, Abe intended to persuade him to maintain the US troop presence in the Asia-Pacific. The article finds that Japan sees Trump’s position as good for pursuing its goal of diversifying its foreign policy. Neither Tokyo nor Moscow wants Washington to serve as an intermediary between them. Indeed, the article quotes Maksim Suchkov as saying that Japan with a high degree of probability gradually will depart from the idea of “outsourcing” its own security to the United States. He adds, surprisingly, that Japan does not have its own armed forces, and the security of the country relies on US military bases in Okinawa, despite the resistance of its residents. Yet, another expert is cited as confident that cooperation between Tokyo and Washington will strengthen, perhaps with Trump extracting an economic price from Japan in trade. The implications for Russia are left unstated—positive if Japan distances itself from the United States over time, but negative in the short term.
Liudmila Vorob’eva in RIA Novosti on February 9, 2017, gave a foreign ministry view of Japan-Russia relations after stressing that diplomacy in 2016 was very active in the Asian direction. She highlighted the Russia-ASEAN summit and Russia-Japan relations. For the latter, the focus is on joint economic activities on the Southern Kurile Islands. Both sides are preparing proposals to discuss with each other in March. Asked if Russia is prepared to transfer two islands on conclusion of a peace treaty, as was indicated in 1956, she finds this a complicated matter, citing other geopolitical conditions raised in the 1956 declaration. She spoke of necessary conditions, atmosphere, trust, public opinion, and economic cooperation, i.e., multiple preconditions. The impression is that this will be a long process, which is barely beginning.

Sino-Russian Relations

Ivan Zuenko on February 16 for the Carnegie Moscow Center compared China’s ties to Kazakhstan and Russia, asking why Russia is at a disadvantage. Despite years of talk of Russia and China forging “Greater Eurasia,” they have not even been able to
develop a border zone of free trade. He observes that borders between China and the countries of the EEU retain harsh barriers to goods, people, and capital. Distrust is so great that one cannot cross in a private car, he adds. Talks of ending the need for visas has stopped, and China raised the cost in 2016 for a tourist visa from 2,500 to 4,440 rubles. Zuenko asks what is the point of talking about close economic ties in these conditions. Looking back to plans at the start of the 2000s for the three cases of Blagoveshchensk-Heihe, Zabaikal’sk-Manzhouli, and Pogranichnyi-Suifenhe (the last the most serious with an experienced Shanghai partner in Shimao and an area set aside on both sides of the border for private cars to reach without going through tourist firms), he finds that they stumbled over clashing interests. Russia sought assembly production on the Chinese side, while China sought low tariffs on what it produced there and access for its workers to the Russian side. The result was that customs controls and visas were kept, even if some success resulted. Foreigners are not allowed into Russia with special rights—even today the law on the free port of Vladivostok has been held up for more than a year over a special regime for visits by foreigners. Controlling offices in Russia cannot agree today, let alone in the mid-2000s when oil prices were high and potential Chinese investment was more likely. Zuenko adds that Russian partners persuaded Chinese to go ahead in Suifenhe in expectation that guanxi would smooth the way; so they built a Holiday Inn and a trade complex by 2005. On the Russian side almost nothing was built, and what was has been left empty for a decade. Zuenko charges that Moscow, having centralized matters, sabotaged this project, fearing loss of control over trans-border movement of goods and people and favoring large enterprises over small-scale traders. Local residents would have benefited from access to cheap goods and services, but most of the benefits would have gone to the Chinese side, Russian authorities decided.

In Blagoveshchensk cooperation stumbled again over construction of the ill-fated bridge, under discussion since 1993, and in Zabaikal’sk Russia insisted that cars cross only if drivers had invitations from a Chinese tourist firm for no more than 10 days and coming from no further than 20km from the border. A similar fate befell the cooperation of the Russian Far East and Eastern Siberia and Northeast China in 2009-18—a year later neither side wanted to discuss its realization. Now the SREB and EEU is the model for cooperation, for which Zuenko seems to have little hope.

He then turns to Khorgos on the Sino-Kazakhstan border, which also was the object of agreements in 2004-2005, but this time directly between the Kazakh government (not local authorities) and China. While border formalities demand patience and citizens of Kazakhstan are prohibited from spending heavily of visiting the zone more than once a month to forestall commercial activities, he describes a working system on a large scale. Chinese come for duty-free goods—cosmetics, alcohol, cigarettes, and chocolate. Arriving from Xinjiang, where visas are now difficult to obtain, they do not need visas. Zuenko draws lessons for the Russian side, saying that concerns about illegal migration are baseless, countermeasures work against chel’noki (suitcase, commercial traders), vast vistas are open for the expansion of exports, and Russian producers would gain in conquering the Chinese market, in contrast to the administrative hurdles that they now face. He calls for establishing a zone similar to Khorgoz in Russia. The biggest threat is non-collection of duties due to the chel’noki, but that is not so bad given the benefits to consumers and business.

In a report on Chinese capital in the southern part of the Russian Far East, the Asia-Pacific Research Center of the Far Eastern branch of the Russian Academy of Science Institute of History, Archeology, and Ethnography reported in 2016 on interviews with local officials and representatives of business in Primorskii krai, Amurskaya oblast’, and the Jewish Autonomous oblast’ as well as talks with local residents. The authors—Ivanov, Savchenko, Zuenko, and Kozlov—found that in 2012 the central government began cutting back on financing of the development of the Russian Far East, seeking instead investment from Russian and foreign business. New zones were established to attract the funds—“territories of advanced development” and the “free port of Vladivostok”—as well as new organizations to attract investments and spur exports. China was targeted, after it had promised in the mid-2000s to invest by 2020 no less than USD 12 billion and had approved massive infrastructure projects for electricity and gas—important for Russia but less so for this region after a brief uptick during construction had passed. The largest sums have been credits by Chinese banks to Russian state corporations in the oil and gas sector. In contrast, FDI, as issued throughout the world, has been scarce, and the figures in Heilongjiang and jurisdictions in the Russian Far East do not correspond and are complicated by the use of offshore (e.g., Cyprus) accounts and the absence of verifiable statistics. Urban authorities in Russia sought big investments, having no interest in hundreds of small, mobile, short-lived enterprises, poorly controlled. These could not serve as points of growth or clusters. Proximity to China is deemed a risk and opportunity. Serving as a transit zone for Chinese goods has geopolitical risks, readers are told. Foreign investors prefer to put their money nearby in China rather than in Russia. In the EAO, China’s strategic aim is only to extract natural resources, supply labor, and use the area for transit trade to other markets. Yet, the dilemma is that development is impossible without cooperation with China. Attracting foreign capital is harder now, given budgetary constraints that limit the carrots that can be offered.

Chinese enterprises in Vladivostok—restaurants and hotels—and elsewhere have tried to join together to serve their interests, but their ties have been unofficial with little impact on politics. So-called “Sino-Russian industrial trade, economic parks” are engaging in border, retail trade in metals, wood, and foods—occupying an important place in the Primorskii krai economic system. Chinese workers keep to themselves, living in dormitories and eating in dining halls, and having their own leisure areas (such as basketball courts) and health services. Positioning themselves as a result of the success of cooperation between the two countries, they choose names officially and unofficially to showcase this message. They also hire Russian citizens as managers or general directors and maintain special relations with the local authorities. The aim is not to avoid showing the foreign nature of the firm. The result is mutual dependency between local authorities and Chinese business. What happens locally often is far removed from central declarations. The Heihe-Blagoveshchensk bridge has stalled for more than 20 years. Investment projects often do not realize their initial aims, contradicting the rosy prognoses by the Chinese investor about the number of workplaces to be created and the increase in the tax base. Instead, there is no such reality. Often the result is conflicts with Russian business demanding equal conditions. Since local authorities and business are usually tightly intertwined, one should suppose that establishing attractive conditions for foreign investors—as is planned—will have to be done in spite of the local officials, not thanks to them.

After the value of the ruble plummeted, there was talk that Russian products would now have an easy time in the Chinese market, but an article in lenta.ru on January 23 found that this was not the case. Exports from the entire world are flowing into China, and consumers there are picky, readers were told. Disagreeing with two myths, the author asserts that the huge Chinese market is not insatiable and all niches are filled, and that the image of Russian goods is low (preference is for Swiss chocolates, New Zealand honey, and China’s own vodka). The idea that pristine Russia is idealized in ecologically challenged China is not confirmed. Of Russian exports to China, about 11 percent in the first nine months of 2016 were food—mainly frozen fish and soybeans—leaving only USD 300 million in processed foods. Near the border, as local Chinese businessmen lost export orders, some had to buy Russian foodstuffs. Souvenirs are sold on “Russian street” in Harbin or over the Internet. There are possibilities for bottled water, juices, baby food, ice cream, etc., but the way Russian products are sold is a problem. Many enter China for personal consumption, avoiding procedures with customs and sanitary inspections. Over a long time a subculture has emerged for moving goods across the border. Russian goods have only one appeal: low prices. The article describes in detail distribution problems that plague trade, e.g., being obliged to change the brand’s name, having to deal with Chinese consumer preferences for desserts that are not so sweet, failing to rely on translators and marketing experts as if merely the uniqueness of the Russian product suffices, and excessive optimism as in the rise of chocolate sells in 2016 without noting that they fall short of sells to Kazakhstan with 1/70th the population.

An article on January 24 in IA REX by Agavni Arutiunian on the Davos meetings raised the prospect of China becoming the first violinist in globalization, as Xi Jinping was in attendance, drawing the attention. China is 16.5 percent of global GDP and 39 percent of global growth, readers are reminded, and Xi’s impact as well as that of the formidable Chinese delegation is called unprecedented for an Asian leader. The article quotes Jack Ma’s criticism of the United States for having been involved in numerous wars at the expense of its economy or letting money go to Wall Street leading to financial crisis. Ma discounts any possibility of a Sino-US trade war. The message is that China seeks to avoid such a war and intends to take responsibility for stabilizing the global economy, reaffirming globalization while blaming problems on inadequate leadership and on states that solve their own problems on the backs of others. The article finds Xi intent on shifting world leadership to China through support for globalization, as he seizes the strategic global initiative from the Americans.

On February 8 in RIA Novosti, Ambassador Andrei Denisov wrote on Russia’s place in China’s market. Asked about many Russians being fearful of increased trade with China and the closeness that would entail, as if it would benefit China not Russia since Russia largely supplies raw materials, Denisov responded that with such major partners there can never be any restrictions and trade always reflects a balance of interests, and that trading natural resources merely means effectively using Russia’s advantages. As for the trade figures, due to the fall in energy prices and other natural resources, the figure of USD 100 billion in 2015 was not reached after exceeding USD 90 billion in 2014. Yet, Russia has kept exporting oil in greater quantities, becoming China’s number one source. At the same time, the fall in the value of the ruble has opened new possibilities for exports to China, such as agricultural combines. Exports to China of machinery rose 35 percent in in 2016 from a low base. Denisov highlights the importance of long-term contracts for big investment projects, such as Yamal natural gas, in which Chinese are investing. Agricultural exports to China are also showcased, such as grain and soybeans. Thus, Russia has widened its niche in the Chinese market, found new ways for the assured development of trade, and counts on big contracts. Denisov stresses a radiant future for bilateral economic relations.

The Korean Peninsula

On February 10, ambassador to the DPRK Alexandr Matsegora wrote in TASS that Korean problems can only be resolved through peaceful means. He starts by saying that Russia scrupulously follows the restrictions in the two sanctions resolutions on North Korea in 2016 without acknowledging Russia’s role in watering down these UN decisions, and he adds that the sanctions committee that follows the fulfillment of the resolutions has not found even one violation by the Russian side. Insisting that these restrictions should not have a negative influence on the socio-economic position of the DPRK and the material conditions of its population, he pays no regard to charges that it is precisely such exceptions (and funds sent back from North Korean workers in Russia) that enable North Korea to fund its nuclear and missile programs). Indeed, Matsegora calls all supplementary, non-UN sanctions on Pyongyang illegitimate, which, correspondingly, ignores. Even so, he conceded that there has been an impact on Russo-North Korean cooperation. Long-term planning between the two countries is impossible given the North’s insistence that it is in a pre-war situation, where conflict could occur at any moment. Banking operations are almost impossible, leading Russian businessmen to travel there much less, to stop trade, and to freeze investment projects. The Ministry of Foreign Affairs and embassy are doing all they can to prevent contacts from being interrupted with considerable success, as in dialogue at a high political level and trade through the Rajin project, which brought more than 1.7 million tons of coal through the port.

Matsegora argues that only a compromise can resolve the Korean problems, but that North Korean friends insist that the Six-Party Talks format is dead and bilateral dialogue with the United States is preferred. In response, Russians insist to them in persisting mutually respectful dialogue that managing problems on the peninsula is possible only in the context of a reliable system for sustaining peace and security in Northeast Asia, which requires the participation of all the countries of the region. Again, of late Pyongyang is looking to a new US administration as a possibility for changing the US approach. Disagreeing, Matsegora insists that Russia and China, both bordering on Korea, must have an important role. The issue is framed as a failure of the regional security system, not as nuclear blackmail by the North. It is clearly Russia’s intent to be a guarantor of North Korean security while agreeing, apparently, with collective efforts to weaken the US-ROK alliance. Matsegora also praises the positive social and political changes in the DPRK, successfully keeping its political system and expanding market forces. Those who see a collapse are greatly mistaken, he concludes.

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