Country Report: Russia (March 2018)

Editorial Staff (with the assistance of Olga Puzanova)

Three themes dominated the coverage in Russian analyses of the Asia-Pacific region: 1) China’s shift toward authoritarianism and tensions in the West over perceived Chinese protectionism; 2) aspects of Sino-Russian relations; and 3) fast-moving developments related to North Korea. Also, a miscellaneous category is required to capture other issues raised in the latter part of the winter of 2018. There are still echoes of Russian confidence in the prospects for Sino-Russian relations and a dearth of sharp criticisms of China despite calls for some changes in how ties are unfolding. There is also feigned optimism about Russo-Japanese relations but less so in “Greater Eurasia” as a construct for Russia reshaping a vast area.  

China

In a February 28 Moscow Carnegie Center article, Gabuev asks why China is turning in an imperial direction, warning that this is dangerous not only for China but for its neighbors and the world. He finds Xi Jinping, who sees China as being in a deep crisis and needing a strong hand to save it. A collective is unable to take tough decisions, caught in perennial intrigues and beholden to vested interests and clans of the ruling elite. Given past failures at deep structural reform, the only way forward—Xi is viewed as calculating—is for him to demand greater personal control and a new super-agency to wield it. The problem is more dangerous than that of the United States in 2007, one Chinese has said, noting debts, ineffective state companies, and the outflow of billions abroad. Yet, Gabuev points to another problem, hypercentralization, where only Xi or someone he trusts can decide. Liu He versus Li Keqiang is an example of the ongoing conflict over economic reforms. Gabuev does not predict the outcome of Xi’s moves, but he explains their foundation.

Ivan Zuenko in Kommersant on February 27 commented on the end of term limits in China, allowing Xi Jinping to stay in office for life. If, formally, “reform and openness” have not ended, this decision, in fact, spells the end of the “post-Mao era” and the start of the “Xi era.” From 1976 to 2012 without allowing the term, China, in essence, was following the logic of “de-Maoization.” Zuenko notes that the new era would acknowledge that the old recipe for socio-economic success has spent its course, and the new algorithm means tight control from above over all levels through a charismatic national leader, akin to the “Two absolutes” of the 1970s, i.e. absolutely all ideas of Chairman Mao are true, and absolutely all of his directives must be followed. Any such regime faces the risk of deformation. Corruption, social conflict, and an anti-corruption campaign will turn into repression of those with a different vision. New types of technological and informational control can lead to the creation of a new plan for a repressive regime—a frightening outcome that Zuenko fears is on the horizon.

Another Kommersant article on February 1 discussed Western responses to China’s concealed efforts to exert influence on their internal politics, citing efforts in Australia to pass a law to limit such behavior and noting similar moves in New Zealand and the United States as well. United Front work seeks low-level intelligence, a positive image of China among leaders, and widespread pro-Chinese sympathies in the population as a whole. In the face of a scandal, Turnbull agreed to new legislation in Australia. In New Zealand, an immigrant parliamentarian from China was exposed for his background in military intelligence. In the United States, revelations of threats to academic freedom are mentioned. The article asks if this is paranoia or watchfulness, as it reports Chinese rebukes that this is Cold War thinking. Igor Denisov takes a similar line in Russia, equating the charges against China with those against Russian hackers. Ivan Zuenko is cited as saying that in Russia, Chinese students are quite apolitical. However, the article cites a Chinese teacher, who was asked to supply information and then pressured by a visit officials paid to her parents. Others were told that they would be handsomely rewarded, says Mikhail Korostikov.

On February 27, Aleksei Maslov in Rosbalt v Mire wrote about China’s return to authoritarianism, charging that it will influence the entire world, not just China’s political system. Xi’s reforms are equated to Deng’s with the added dimension that they are aimed at changing the world. It is called “re-globalization on the Chinese model.” This is related to the fact that the only way to stabilize inside China is to control external resources. Xi has repressed all possible sources of political opposition. Public approval is not a problem now, but readers are told if Xi Jinping is not able to achieve something fundamentally new in the economy and in lifting China’s role in the world, he will be risking a lot, including a wave of dissent at the end of his term. At a time when many countries from India to the United State disapprove of China’s aggressive economic policies, if some of China’s projects fail, e.g., BRI, Xi will be blamed, but again, no earlier than five years from now. Maslov casts doubt on Xi’s extension of power.

On March 5 in Novoe Vremia, Alexander Lukin asked if Xi’s decision to open the option to stay in power longer is motivated by a mission in which Xi sees himself as irreplaceable in fighting corruption and restoring the spirit of the Communist Party, or the leadership considers ten years insufficient to conduct the reforms that are needed. The system forged by Deng Xiaoping had aged, and Xi was bent on changing it. Yet, Lukin is cautious in concluding whether Xi’s plans in foreign policy will succeed, pointing to the widening scope of national interests extending to new conflicts with Japan and in the South China Sea and even talk of forging a military bloc, whereas earlier this was seen as only done by imperialists. Lukin mentions Chinese sanctions against Mongolia for receiving the Dalai Lama and against South Korea for THAAD. Thus, gradually, China is shifting to politics of a typical “great power,” worrying Australia, Japan, India, and other neighbors as well as the United States, which are beginning to forge a new group based on their interests. Any such group can interfere with China’s economic growth, which is heavily reliant on exports. Lukin adds that some in Russia are pleased with the political change in China, where a leader also rules for a long time, but most historical cases show that unlimited durations of rule lead to a serious crisis. Critical to watch are the economic policies to follow.

SinoRussianRelations

On March 2, Aleksandr Gabuev wrote in Kommersant about Chinese protectionism, discussing the arrest of Ye Jianmin, who controls CEFC Chinese Energy, which has taken a large stake in Rosneft as well as Yamal and SIBIR. Last year Chinese were already casting doubt on this man when questioned. Yet, clearly, Ye had protectors, enabling access to huge state bank loans not available to others for international expansion peaking in 2013-17 when a purge of the energy sector was under way. In 2017 CEFC began to experience difficulties, including an inability to attract credit from China’s Development Bank and other state banks in time for its purchase of Rosneft shares. Perhaps, his protectors are among the targets of the ongoing purge, Gabuev surmises, or Ye was bluffing all along. Neither prospect bodes well for Russian companies, which have turned to Chinese private funds in conditions of Western sanctions. Such money will be harder to get; it will be necessary to study partners carefully and their political connections.

Dmitrii Prokof’ev on January 15 in Ekspertnyi Konsalting wrote about direct contradictions between China and Russia in the Russian Far East, as the pace of China’s investments intensifies and discussions about them are spreading wider. In 2017 such investments rose by a third, even if they were tiny compared to overall Chinese investments elsewhere and only comprise about 1 percent of the $33 billion invested in Russia in 2016. They are even less than Chinese investments in Kazakhstan. As of April 2017, direct investments in Russia were only $2.9 billion, half of the level of April 2014, and the only big deal was the sale of 14.2 percent of Rosneft to SEFS for $9.1 billion. Also, Sino-Russian trade has been stuck at the same level for a decade, peaking in 2014 at $89 billion when oil prices were high and dropping to $69.5 billion in 2016 with the first half of 2017 at about $35 billion as the value of the ruble remained low—despite promises of $200 billion in trade by 2020. Given that Chinese production already flow into Russia through Kirgizia, what is the need for more open crossings on the Sino-Russian border? Also, where is the rising demand in Russia for Chinese goods?

The article adds that despite protocols of intention, few projects are realized—in the past two years just two of ten. Chinese are promised tax benefits but those are not delivered, causing projects to be scrapped. One plan for Chinese investors was to invest $2 billion in a metallurgical export cluster, but some economists warned that in Russia there was already a surplus of steel production. Where would the steel be sold? Was this a way to move ecologically harmful production out of China? Was China cutting back due to a surplus of steel capacity leading to targeting Russia? Another case is the 770 km railroad from Moscow to Kazan’, where a Chinese bank would provide credit requiring the import of technology and equipment from the Chinese side and for payment of Chinese specialists. This is not how Russia wants to see cooperation proceed. It wants Chinese money to buy high-quality equipment, not necessarily from China, with Russian oligarchs handling the construction, local technology, and labor. The disagreements are radical, and China will not work on the basis of Russian conditions. Russia is not even in the top ten trading partners for China—less than 2 percent of its foreign trade is with Russia—and its oil can be replaced. The article warns that development of the Russian Far East is an internal matter, but it offers no indication of how Russia might proceed, apart from doubting China.

Vladimir Skosyrev in Nezavisimaya Gazeta on January 23 wrote about the United States’ search for allies among China’s neighbors and China’s base construction on disputed islands in response. Mattis seeks to support states that are dissatisfied with China’s maritime expansion, using the pretext of defending freedom of navigation, and China defends its sovereignty in a serious dispute. As Washington lumps Moscow and Beijing together as expansionist, its real aim is to draw Jakarta and Hanoi into closer military cooperation. China regards the moves of US ships as provocations and insists that it needs to boost its military presence. Quoting Vladimir Portiakov, the article adds that the dispute over Scarborough Shoal is old, and China is strict, but it has allowed Philippine fishermen to operate. China is not rattling sabers, but Washington is, striving to demonstrate that it will always be the strongest. As the Korean Peninsula has quieted a little, it has become necessary to stir trouble in another place, even if the US president is not pushing this, but officials are. For now, the situation remains stable, as Chinese defer from getting into disputes with the Americans, but gradually, such issues will lead to an eventual, sharp reaction. As China positions itself as one of the greatest powers, it will not be patient forever.

Iurii Tavrovskii on February 12 in Nezavisimaya Gazeta called for more personal control by leaders over trade ties between Russia and China. Noting that the “new era of socialism with Chinese characteristics” actually began in 2012 with Xi’s ascendancy and that this has coincided with the best period in Sino-Russian relations ever—also worthy of being called a “new era” and coming with the near-simultaneous return to power of Putin—Tavrovskii sees synergy between the two states. Putin and Xi draw on mutual sympathy, similarity in ages and life experiences, and the results of more than twenty summits with national security in the forefront. Washington does not accept the existence of these two major powers and has sharply intensified its containment in ever more dangerous forms, driving the two together with new forms of cooperation through military-political ties and efforts to create a new financial system free of the dictates of the dollar. Sino-Russian ties are intensifying in missile defense, which some experts see as having “elements of an alliance.” Tavrovskii calls an alliance the next serious step and dismisses the leaders’ claims against it as limited in concreted circumstances and a certain time, whereas the times are rapidly changing. Washington is proclaiming that these two are its main enemies and is acting accordingly with steps equivalent to an economic war. An alliance could result from war on the Korean Peninsula, a proclamation of independence by Taiwan’s leaders under US influence, an “accidental” clash in the South-China Sea, an attack by the army of Ukraine on Donbas, or another factor causing Russia and China to confirm the closeness of their relations. When Putin and Xi start meeting again in the spring, issues of security will be at the center of attention. Yet, the article does also acknowledge serious contradictions in bilateral relations, citing one Chinese specialist on ties “warm at the top, cold down below.”

Trade in 2017 struggled to reach $80 billion. Inter-government commissions are not working well. Establishment of free economic zones keeps being delayed. Massive joint projects of the Moscow-Kazan’ railway, construction of a heavy helicopter, and wide-fuselage aircraft are stalled at the stage of agreement, verification, and discussion. Changes to the financial system to smooth the flow of capital and shift to using national currencies are not working out. This indicates that these are not temporary snags but matters of a systematic character, which cannot but influence the warm ties at the top, although Putin and Xi are holding it back in light of the threats to national security. The leaders are already engaged in managing big economic decisions at home and, in Xi’s case, in Sino-US relations; so why do they not do so in this bilateral relationship? In Kremlin and Zhongnanhui offices, plenty of unfinished plans await, remaining on paper without the interference of the two top leaders.

On March 13 for Carnegie, Ivan Zuenko asked why income from Chinese tourists does not make it into the Russian budget. What can be done? End the visa regime for tourist groups, freeing Chinese from their groups? He notes that at a February 1 press conference in St. Petersburg, it was asserted that the flow of tourists from China was not only unhelpful for the Russian economy, but even harmful to the local tourist industry, despite the fact that officials prefer to remain silent about this. A letter from the association for cooperation in Russo-Chinese tourism to Putin and the head of Russian tourism at the Ministry of Culture asked for a solution to this. Now public opinion has been awakened, not just that of the specialists in tourism.

Since the drop in the value of the ruble in 2014 the flood of Chinese tourists has enriched Chinese business, above all, leaving Russia to work for “tickets and chocolates.” Officials in Russia, including in the regions, such as Primorskii krai, like to cite figures for the flow of tourists as proof of their effectiveness. However, the main attraction is not administrative constructs such as the year of tourism in Russia for China or concrete mechanisms such as China Friendly certificates, but the cheap ruble. For Chinese who cannot afford Europe or Japan, Russia has become the inexpensive alternative. The number of tourists was 158,000 in 2010 and 1.5 million in 2017, but this figure may be far off the mark. Omitted too are data on how long they stay and how much they spend. A better count of Chinese who came on no-visa exchanges in the first nine months of 2017 is 840,000. The main attractions are Moscow and Petersburg, as well as the Russian Far East and Baikal areas, drawing people for 7-9 days to see the Hermitage and Kremlin. Chinese know little of the “Golden ring” of cities northeast of Moscow and care little about “red tourism” to revolutionary destinations except for officials, for whom a budget has been allotted. The typical tourist is a woman of about 50 in a tour group. Individual travelers are rare since they require visas and stories of tourists cheated or robbed by police, skinheads, and guides abound on the Chinese internet. The result is total control by a tourist firm over the entire trip, requiring 5000-8000 yuan for everything from transport and lodging to food and guide services. The Russian tourist firm is limited to sending blank invitations for the group, although now some destinations require the Chinese group to hire a Russian guide. Perhaps, 2000-3000 yuan in pocket money will be used, purchasing at great mark-ups from the souvenir shops designated by the firms, for instance for amber items, usually as gifts. Chinese tour operators buy blocks of rooms at the beginning of the season at big discounts and control the restaurants chosen. The article estimates 30 percent profit by the firms and 30 percent more for the guides. Some money is made by Russian supermarkets, strip-tease shows, massage parlors, etc., to which groups are led, but these sums also are hidden from the Russian budget. WeChat transfers of sums are preferred to carrying much cash. Rather than Russian banks, Chinese use terminals of Chinese banks, as in Moscow and Vladivostok markets, to exchange for rubles.

None of this is illegal, the article asserts, and it is standard operating procedure for Chinese tour businesses in other countries as well as for Russian firms in places such as Egypt. Yet, Russians talk about Chinese tourism as a stimulus to the national economy, proposing border development points (TOR) in the Russian Far East and claiming that success in attracting more Chinese will be a boon to the economy. Chinese tourists are the losers, receiving poor quality services (such as on Russian culture and history from the Chinese guides) and overpaying. Russians do receive some funds—transport companies, hotels, prostitutes, supermarkets, guides, and sellers of prestigious goods, such as GUM in Moscow. Yet, there is ecological damage to Lake Baikal and an absence of inexpensive hotel rooms in season. Also, small and medium-size businesses are not only squeezed by the absence of credits in Russia but by these types of Chinese operations. Why build new five-star hotels in Vladivostok, as was planned, when Chinese tourist groups would not pay the going rate? The only answer is to change the visa regime with China to free tourists from the controls they face.

North Korea

Vasilii Kashin in Rossiya v Global’noi Politike in February wrote about lessons of the Cold War and North Korea, including lingering stereotypes. He argues that the duration of a socialist regime depends on the loyalty of the elite, and North Korea has kept this, enabling it to withstand a high level of pressure. Contrary to conclusions drawn about why the Soviet Union fell and how the West won the Cold War, Kashin finds that North Korea offers lessons on how to persist. Only under Kim Jong-un has change accelerated. Access to and information about the outside world has not destabilized the system nor have the unpromising circumstances left from the 1980s. Rather, the consciousness that all layers of the elite would be unable to survive if South Korea were to swallow the North is key. As in the case of China, elite survival depends on preservation of much of the socialist system. Fear motivates North Koreans to stick with the regime.

Compared to the East European cases of elite adjustment and the North Korean case of resistance from fear, Russia was intermediate: starting with full dismantling of the old system, then under intensifying outside pressure from NATO expansion and efforts by the West to liquidate its influence in the post-Soviet space, and finally, the threat of losing governance of the country, it strengthened the leading role of the state sector and state control over society, regaining the loyalty of the elite. To press for sanctions, military pressure, and demonization is a losing strategy by the West, argues Kashin. The DPRK, he adds, is not seeking expansion. Its aim is regime survival through nuclear weapons and dialogue with the United States leading to the normalization of relations. The Western myths about the end of the Cold War have led to absurd strategies in Iraq and elsewhere with catastrophic results. The worst of all could be in Korea. Under this illusion, US leadership in the world is being lost.

On February 12, Anastasiia Napalkova in BBC wrote about what North Korean workers do in Russia, as some of them were beginning to be sent home. In one case, persons invited as high-quality specialists in agriculture were found to be clearing snow, leading to a court case and refusal to accept them, but other specialists were sent only to be evicted. With the late 2017 UN sanctions, North Korean workers must depart by the end of 2019 and joint companies must be closed. Russia has shortened the time for working in Russia to one year and refused to accept new specialists, while sanctioning companies, causing them to lose money on contracts already in force. No new quotas for hiring in 2018 are being issued, and all North Korean labor should be out by the end of 2018, after 45,000 were admitted in 2017 through 30 joint companies. 300 North Korean companies operate in Russia as well.

The article recalls the spring 2017 scandal in the construction of a stadium in Petersburg by North Koreans in slave conditions—even though North Koreans consider work in Russia to be “dream jobs” with wages of about $335 a month, half that of an average Russian worker. They bribe their way to these jobs and pay half of their wage to the state. Working in Russia is better than in China, where semi-prison conditions exist. Loss of these jobs is a blow to North Koreans with the most initiative and to the eye-opening experiences they have with heat, hot water, etc. It is also a blow to the Far Eastern economy, in which construction is largely done by North Koreans. The Russian Far East receives one-third of the quotas, one fourth go to Moscow and its oblast’, Saint Petersburg and its oblast’. Earlier it was lumberjacks living in special camps who predominated. Only one company is exempted from the new restrictions—the one operating in Rajin and involved in the Khasan-Rajin railway. More than half of the North Korean workers were invited by North Korean firms operating in Russia, mostly in construction. The article adds considerable detail on these firms.

On February 15, Andrei Lankov in RBK wrote about Chinese enforcement of sanctions against North Korea, destroying the informal special economic zone on the border. In Yanbian, one can easily see the impact. 10-15 years ago, it was as if no border existed, especially on the Chinese side. Many North Koreans in 1998-99 illegally went to China for work and food. When the North Korean economy started to improve from 2010, the North demanded from Chinese authorities that they limit the flow of refugees and cracked down itself, while allowing people to earn their own money, even as information on life in China and South Korea threatened to destabilize the regime. China complied, as the number of illegals dropped sharply.

However, Lankov adds, at the end of 2017 the situation changed with further tightening of control—this time on China’s initiative. At the beginning of 2018, Chinese authorities closed all firms under North Korean physical or legal control. In Yanji city, almost all North Korean restaurants disappeared even if a few were quickly re-registered under new owners, who could lose their property soon. No new visas are being issued for workers from North Korea and, without extensions, all will be gone soon—a big blow to the North’s budget. There is even a prohibition on photographing North Korean territory, while foreigners are now excluded from some border areas. Firms are closing, especially those in knitting and footware production. Lankov suggests that a full embargo on North Korean exports is taking place, even where Chinese importers had paid in advance and to the dissatisfaction of local businessmen. This tough attitude by Beijing has been caused, above all, by the danger of US armed action. Yet, Lankov, argues that not only war but also a serious internal crisis in North Korea contradicts China’s and also Russia’s interests. If that occurs at the end of the year, Lankov foresees, one can expect China to change course, citing humanitarian problems.

On March 7, Vzgliad warned that a unified Korea would advance territorial pretensions toward Russia, noting that the North is no longer seen as poor relatives since it brings to the table nuclear weapons, which would arm a united, independent state, appealing to part of South Korean society who see a chance for Korea to become a great power. Along with this are ambitions on the left and the right in South Korea to wrest an area from China and another from Russia. The weapons and independence of the North plus the economy of the South is the ideal combination. But many just want to absorb and de-communize the North. Since the entire elite of South Korea is socialized in a pro-American spirit, North Korea’s thinking about confederation is a nightmare to them. After all, the South de facto and de jure lacks full sovereignty. The article concludes that for now the two Koreas agree not to give Trump a chance to strike a blow, leaving little prospect that unification is really in the picture.

Artem Lukin in Valdai club on March 12 asked if Pyongyang’s readiness for negotiations is a sign of strength or weakness. Even if Trump reaches a deal, Lukin sees little chance of it being consummated given hardline US officials who demonize the North and democrats who hate Trump and oppose any initiative by him. Although developments in March have elicited some optimism, Lukin concludes that this is premature. North Korea has previously asserted that it would denuclearize, but its conditions matter. A guarantee of its security may sound acceptable, but the vagueness of this request requires attention, raising the possibility that such demands refer to the removal of US troops from South Korea or even Japan and the end of the US-ROK alliance. The elimination of US nuclear weapons might even be demanded. Thus, talks would shift from the denuclearization of one country to something much broader. Pyongyang is clearly counting on reciprocal moves in response to its freeze, such as relaxation of sanctions. Much depends on how Washington views Kim’s motives. If it senses weakness, it might seek capitulation. Tightened sanctions since 2017—now close to an economic blockade—have to weigh on Pyongyang. It is not known how large the North’s gold reserves and strategic oil supplies are, and it is unclear if rockets can yet strike the US mainland with nuclear weapons. A de-escalation deal might be found, but would this satisfy Washington or would it even stick, given opposition forces there?

Miscellaneous

Viacheslav Sutyrin in Evraziia Ekspert on February 8 looked ahead to “Greater Eurasia” after a decade, warning that it could be assembled by China if the EEU does not work. Critics fault this Russian concept for being abstract and declarative, and as still at the stage of discussion without “technological procedures.” A wide-ranging discussion left the author in doubt that a path forward was in sight, leading to concern that the residual outcome is China’s domination, but this is not assessed in any way beyond treating it as the alternative to Russia’s failure.

In Mezhdunarodnaya Zhizn’ Aleksandr Ilyshev-Vvedenskii and Mikhail Shvydkoi wrote about the year of Russia in Japan and of Japan in Russia, asserting that this testifies to an increasing level of trust between the two countries. They add that relations are now poised to rise to a qualitatively new level—a real partnership. It is as if the only thing holding ties back are the sanctions to which Japan was pressured to accede. The frequent summits—four in 2017—are treated as helping build momentum, as have a host of other regular meetings. Important projects are under discussion, such as a pipeline and railroad between Sakhalin and Hokkaido. Mention is made of the October 26-30 visit by a Japanese delegation discussing projects for joint development on the southern Kuril Islands—fish farming, wind energy, greenhouses, use of garbage, and package tours. It is suggested that Japan and Russia are notably increasing their cooperation at the Security Council. As for the years focused on each other’s culture, the sphere of cooperation is seen to be wider, even dealing with values, and a way to give a powerful positive impulse to relations. The kickoff event will take place on May 26 at the Bolshoi Theater, where Putin and Abe will be in attendance. The article makes no mention of any problems, gives no hint of any need to deal with the territorial issue, and assures readers that bilateral relations are becoming ever more harmonious.

#BRI #Greater Eurasia #Russian Far East #Southern Kuril Islands #Trump-Kim summit #Xi Jinping