Country Report: Russia (September 2017)

Editorial Staff (with the assistance of Olga Puzanova)

The summer in Russia saw claims of optimism about Sino-Russian relations without much substance and amid some talk of having to move beyond megaprojects, which appear no longer promising. In the background were growing concerns about how well the EEU and China fit together or instead become a conduit for bypassing the customs agents in Russia. There was scant sign of any other path for the “turn to the East.” Japan ties stumbled. South Korean overtures made little headway, given Russia’s position on North Korea, placing increasing blame on the United States. The Russian Far East was also left in the shadow of North Korea, as seen in the September Eastern Economic Forum, which no longer had the buzz of a year before despite the return of Abe as promised as well as Moon Jae-in’s first visit to Putin, trying to be upbeat.

In Kommersant on August 24, Russian progress on high-speed railroads was heralded. The article asserts that the gigantic project of a Eurasian corridor is no longer simply a beautiful idea; instead, a detailed proposal now exists for the Moscow-Kazan’ line, part of the Berlin-to-Urumchi line offering a 9½ hour trip over the Russian portion of the route, through which, by 2050, 20 million tons of goods and 37 million passengers are planned to pass. Nonetheless, the article warns of a cost of 8 trillion rubles, of which Russia will owe 3.6 trillion. An investment fund is planned, and the article optimistically anticipates private funds, citing a meeting scheduled for that day on the project, which has been discussed since 2013. Kazakhstan has priority, not Siberia, for the route, and the first line to be built would be the Moscow-Kazan’ route, beginning in 2018 and ending in 2023 for passengers and 2026 for cargo along the entire route. Detailing preconditions for the project such as a rise in high-value goods moving between the EU and China, the article sees this plan as a big boost for the Russian economy and, it seems, the goal of Eurasianism; but a brief final paragraph warns of a lack of political will and of a history filled with skepticism and irony. The rosy picture was in doubt.

On September 5, a Kommersant article by Mikhail Korostikov focused on the third Eastern Economic Forum opening in Vladivostok, observing that from the outset Japan has been the only real partner in this endeavor as seen in Abe’s announcement there in 2016 of his “Russia policy,” not concealing his aim to predispose Moscow to transfer the Southern Kurile islands. Putin agreed that the absence of a peace treaty 70 years after the end of the war is abnormal but was silent about the islands. While there was hope that this question could be set aside, 1½ years after Abe’s 8-point plan, it is clear that without fresh approaches the current effort to draw Japan and Russia close will end in failure as the two prior efforts did in the early 1990s and early 2000s, setting back relations and worsening public opinion. This pessimistic outlook applied to Japan, but elsewhere too.

Explaining these failures, Korostikov notes that Russia and Japan are two principally different societies and signals from both sides do not get across. For example, Japan assumed the success of its economic program for a sanctioned Russia, and Russia had considered that its market would meet the dreams of Japanese businessmen without paying attention to its own responsibilities. Meanwhile, Russians are similarly offended by Japan’s symbolic sanctions as by American sanctions, even though Japanese rightly insist that there is no substance behind them. Yet the main factor, readers are told, is that neither side sees any positives from retreating from its position in this conflict or feels any urgency to conclude a peace treaty, the absence of which does not interfere with either political or economic ties. There is an absence of mutual interests. The countries are members of different alliances and part of different economic contours. The early June Japanese inspection delegation to the islands produced minimal results: Russians did not bother themselves with such a trifle as to simplify the regime for visiting the graves of Japanese. The article concludes that military factors have overtaken the negotiating process. Russia adds troops on the islands, while Japan installs ballistic missile defenses, which Russia considers to be directed against it. Talks on military and foreign policy, as before, just mean restating one’s own position without real dialogue. There are no preconditions for taking risks with each other and making mutual concessions.

China and the EEU

I. Iu. Zuenko and S.V. Zuban’ wrote about the future of Eurasian integration, focusing on the cross-border movement of goods between China and the EEU. They point to a wide array of side effects, raising doubts about the tradeoffs between resolving geopolitical issues and ignoring risks to economic security in the countries of the EEU. They warn of the need for institutional development before further integration proceeds, writing in a collection of articles on Integration in the Asia-Pacific Region in Tamozhennaia politika Rossii na Dal”nem Vostoke, No. 2, 2017.

So far, the EEU is a formal structure, but China prefers the word “initiative” for its plan, leaving ambiguous how to draw the two schemes together, as viewed in various types of movements across China’s borders, which could constitute some sort of integration. One group sees this as in the interest of EEU countries in transit trade and in the attraction of Chinese capital, but another group sees these states with a partial exception for Kazakhstan as heavily influenced by neo-conservative forces, which adhere to an ideology of self-reliance and try not to allow any real diminution of sovereignty, limiting the potential for integration. Other limits result from distrust of China, fear of being swallowed up demographically and culturally, and the close cultural code historically favoring Russia, not integration with China.

The article analyzes customs data, noting shifts in the movement of Chinese goods, already affected by five years of a Russia-Kazakhstan customs union and Kyrgyzstan’s August 2015 entry into the EEU. In both cases, goods destined for Russian markets increased substantially in the other countries. The main reason is the ease of illegal entry due to low quality customs administration. Such institutional discrepancies within the EEU mean that lowering internal barriers offer opportunities to entice companies in Chinese trade, as local companies profit as intermediaries, local bureaucrats collect payoffs through corrupt practices, and existing interest groups oppose further liberalization, taking into account very weak domestic production and wide public support of protectionism to preserve jobs. Indeed, in 2016, as Kyrgyzstan and Kazakhstan began a trade war under slogans of protectionism, they competed to gain an edge in the grey trade, including auto-caravans to Russia with guards across the latter.

The loser in this is Russia, in tariffs and taxes, with higher tariffs and stricter control to protect its producers. Kazakhstan wins within the EEU as the entry point for Chinese goods to Russia and, inviting foreign investment to produce there, in future trade of its own products. Despite these results, Russia is driven by geopolitical motives to tighten ties with former Soviet republics and to deny outside actors there. Political rhetoric of integration is accompanied by protectionism, feeding off each other and arousing dissatisfaction in some circles—casting doubt on the projects of Eurasian integration. Behind the rhetoric of integration, national elites are not really supportive and broad circles of society have “anti-integrationist” views. The authors conclude that genuine integration in Greater Eurasia is a matter for the distant future, only if administrative quality is raised, among other factors.

On July 14 in Nezavisimaya Gazeta, Anastasiia Bashkatova wrote that the Eurasian Union would turn Chinese for the Center of Eurasian Research, as Russia lost its economic positions in the post-Soviet space. In recent years, almost all EEU participants have reoriented their economic activity from Russia to China, she asserted, as Chinese investments, credits, and purchases eat away at the share of Russia in the foreign trade of these countries. The article reviews a report from the Institute of Economics of the Russian Academy of Sciences on China’s strategy for developing this space and the fate of the EEU. Only Kazakhstan has not succumbed to imbalanced trade with China. States are exporting agricultural goods and raw materials to China as they cut back Russia’s share, while also importing industrial products from China at the expense of Russia’s trade share. Russia imports less oil as China’s imports skyrocket. China, readers are told, has become the source of modernization, as in transport infrastructure, and this only grows with the addition of the Silk Fund. The report concludes that Russia and China differ in their views of mechanisms of integration with Russia insisting on China-EEU and China regarding bilateral cooperation as more effective, adding that this could lead to deepening cooperation within the EEU, disrupting Eurasian integration, and China swallowing up the EEU.

Sino-Russian Relations

On July 13, Iurii Tavrovskii in Zavtra.ru reviews the Putin-Xi summit, calling it the end of illusions about the relationship as new elements are added to broaden the range of the “strategic partnership” for Eurasian and global security. The cause is growing military, economic, and informational pressure from Washington and its satellites on both states, Tavrovskii asserts. Forced to respond, Moscow and Beijing are drawing closer with increasingly apparent features of an alliance. Yet, in both Moscow and Beijing, he finds many influential figures who are pro-American based not only on their personal interests—secret bank accounts and property, relocation or study there by family members, and other forms of dependency on the West. In both states, there are powerful interest groups whose wellbeing depend on economic ties with countries or institutes in the West. Tavrovskii accuses “natural monopolies” in Russia of being so powerful that they can stand aloof from the Kremlin’s line, while responding to signals from their partners to interfere in any way possible to block Russia and China from drawing closer, influencing government institutions, the mass media, and the expert community.

In China, elites in some coastal provinces dependent on exports to the West also extract concessions from Beijing to keep things as they were, even more so in panic at what Trump might do. Another cause of the contradictory direction of Sino-Russian relations is the middle class in both countries, who treat today’s Western civilization as invincible militarily, economically, and spiritually, although the spread of patriotic attitudes among the youth in recent years is reducing such pro-west attitudes. Even authorities in Moscow had hopes for a “good tsar” coming to power in Washington, and Chinese leaders were exuberant as about the April Xi-Trump summit. Neither strategic partner gave much thought to the other as they weighed bilateral overtures with Trump, suggesting a “great triangle.”

Illusions may help to explain the temporary unevenness in economic and diplomatic contacts over some months, including the suspension of some economic projects and the restrained position of Moscow in May at the BRI forum. But Trump grew obsessed with his survival at home and found the “great triangle” game beyond his capacity. After taking a step forward with Russia and especially China in his first months, he took two steps backward. US actions toward Taiwan and the South China Sea were unmistakably signals of an enemy to Beijing, as were new sanctions and threats against Russia along with anti-Russian hysteria in the media, culminating in a fruitless Putin-Trump summit in Hamburg.

In the late spring, China reassessed its ties to Russia, deciding on a “new norm,” compensating for limited economic ties with bolstered international security ties. The July Xi visit to Russia is treated as a turning point. Despite prior doubts about the “Power of Siberia” gas line, it now has a starting date of December 20, 2019. A new joint investment fund of about $10 billion will make it easier for Chinese investors to enter the Russian market, using their own currency with a separate $1 billion fund for agriculture and infrastructure. Joint work on high-speed train and truck lines in Russia lies ahead, as Russia takes its place on one of the Silk Roads. This year a Russian channel for films and other shows will begin operating in China with subtitles. This third but not final meeting of the two leaders in 2017 is treated as a big success.

On August 4, Alexander Gabuev wrote in Kommersant that Russian companies that had hoped for access to Chinese credits and markets after the first Western sanctions in 2014 and then—disappointed—for a breakthrough with the West, now may be reconsidering China as its only option following a new set of US sanctions. Yet, Gabuev says, it will be useful to draw lessons on the earlier attempt at “turn to the East.” First, funds will come only on commercial terms, and China will dictate the rules of the game sine its money is in demand everywhere. Second, more than the usual patience is required before the party congress, given the watchfulness of Chinese companies. Third, Russian companies must rely only on themselves in finding partners, calculating risks, and so on. All of the commissions set up in the prior turn to the East amounted to little.

In Expert Online, Anna Koroleva covered the September BRICS meeting of Putin and Xi and preparations for conflict with the United States, in which Russia is joining China in the battle against protectionism. She charges that the aim of protectionism is to fully subjugate economically weaker countries, as in the denial of exports of technology to Russia. She calls for BRICS to forge its own coalition of protectionists against Europe and the West, trading more among themselves and capitalizing on new infrastructure plans, while explaining that China is a victim too since many deals in the West were blocked. US sanctions are a form of protectionism. Yet, she adds that Russia must produce more for export to have its voice heard.

Alexandr Gabuev in the July 5 Vedemosti took the occasion of Xi’s visit to Moscow to argue that over the past three years Russia had gathered all of the low-hanging fruit from its deepening friendship with China since 2014, with projects such as “Power of Siberia” and by supplying China with arms. Successes derived not only from commercial logic, but also from geopolitical reasons and personal ties between the leaders, causing Russia’s elite to remain skeptical of this partnership. The main beneficiaries of the “turn to the East” have been big state companies or businessmen long close to Putin such as Gennadiia Timchenko. But now the period of megaprojects with China is ending. Today’s economic conditions and long lead times leave poor prospects for other projects, such as “Power of Siberia-2,” a gas line through the Altai, and the Moscow-Kazan’ train as well as ideas for a joint airplane and a helicopter.

Yet, Gabuev praises continued efforts to plan infrastructure for economic diplomacy in the region, as a rise in trade and mutual investments not only due to big projects and rising prices of natural resources but also due to more attention to Asia by government and business proceeds. The number of inter-governmental meetings on cooperation led by vice-ministers has climbed from 3 to 5 even if there is duplication and a dearth of shared information. The state still is not serious about drawing in expertise on China. The success of Russian business in China depends increasingly on administrative focus. Rather than new political declarations or preferences for companies connected to the Kremlin, there must be concentration on removing non-tariff barriers and establishing free-trade zones, while improving the investment climate in Russia for Chinese with expert input.

Gabuev makes the following suggestions. First, Russia takes an audit of the bureaucratic mechanisms, avoiding the situation where a company with an energy investment in the Russian Far East must run back and forth between four commissions. Second, Russian business lobbying in China lacks its own organization in contrast to the EU, whose example can be followed. Third, existing formats can operate better, assisting their members and, as with other countries, forging regular, informal contacts with leaders in the business world. Fourth, creating widely accessible analytic digests on China useful for fostering expertise. Finally, free trade zones are needed for a full presence in the Chinese market, which are not coming soon through SREB-EEU talks and from the lack of personnel able to conduct such talks, including translators. Such measures would not bring quick results, but as Russians lose hope for Chinese “easy money,” they risk losing their focus on Asia.

India and China

On July 28, Mikhail Korostikov in Kommersant described India and China as on the verge of war, putting the onus equally on strong leaders in both states who are willing to go further in defense of national interests than their predecessors while citing some of the bellicose language coming from Beijing. It notes India’s fear that if China constructs the road it has begun, it would control a strategic area and put at risk the corridor between the two parts of India; it then cites opinions on the 1988 and 1998 agreements between China and Bhutan that point to China’s construction violating them. Yet, it also points to growing impatience in India with the China-Pakistan economic corridor. The article observes that despite both countries being part of the SCO and BRICS, they cannot serve a mediating role, and that economic ties do not act as a defense against greater conflict.

China

In Pravda on July 25, the focus was on American dissatisfaction with China’s “cyber-dictatorship,” which poses a threat, according to Carnegie Moscow—demeaned as an American organization. This is dismissed as just a variation on US controls, much as Stalin used methods present in Anglo-Saxon states. This is a response to the July 18 piece of Leonid Kovachich in Carnegie.ru, which makes the rare case in Russia on a deepening dictatorship in China. Defense of China vs. the United States is not just by communists.

On August 10, Carnegie.ru carried an article by Igor’ Denisov on why China has forbidden discussion of Putin on social media, one sign of tightening control over the Internet. During the G20 on Weibo, a notice appeared in any content on Putin that it is forbidden to comment on this post, and the reposting function was blocked. More important than the contents of the post was the popularity of the publicist—for those with many friends, all mention of Putin was blocked. The article notes that The Financial Times reported on this, explaining that it is due to a golden age in Sino-Russian relations elevating Putin to a status similar to China’s leaders of being the first foreign leader beyond criticism. Yet, that was quickly refuted. One can post criticisms, but they cannot be spread. Putin is a hero to many, who delight in posting his remarks, especially his harsh rhetoric on foreign policy. If there is logic behind the prohibition, it is not due to Sino-Russian relations or Putin’s image but the G20 itself. Warnings of the danger that China is being drawn into the Russia-West confrontation are growing louder and becoming more authoritative. Some experts dismiss Russia as a partner due to its marginal role in the world economy, pointing to risks of being tied to a “weak Russia. The article notes that such views are no longer suppressed by ideological censors. Putin’s meetings in Hamburg were not covered, not even his summit with Trump, which is explained as an effort to keep the focus entirely on Xi Jinping.

On August 9 in taiga.info, Gabuev answered various questions about China’s future. Proposing that China operates by trial and error, not by a hidden plan, he finds it succeeding by adapting, decade by decade. It used the world economy, its diaspora, Deng’s subdued foreign policy guidelines, competent administration with gradual changes, Yet, it has lost time of late in reforming as its old model is exhausted, while relying on credit. Lately, Xi Jinping has prioritized finding a way to stay on top for a third term. Russia and China find common cause in complementary economies, the desire to keep their long border quiet, and similar political aims and values. Yet, trade lags badly. Russians remain Eurocentric—no second homes in Asia—and Russia is too backward to interest China in technology, guarantees for investments, and commercial property. The relationship is asymmetrical, as Russia needs China much more than the other way around.

On August 22, Aleksandr Lomanov in Rossiya v Global’noi Politike wrote about Chinese neoconservatism. He traces to the 80-s-90s a shift from cultural cosmopolitanism to establishment of its own unique civilization, leading to seeking China’s own identity within the world of globalization. First came neo-authoritarianism, then a return old conservatism in defense of national culture, as 1989 was rejected as radicalism in the manner of 1958 and the Cultural Revolution. Confucian conservatism entered the political sphere and education, but efforts to replace Marxism were rejected with insistence that Marxism was sinified and is closely linked to tradition in China. The article points to 2004, when stress was put on Chinese culture’s readiness to go out to the world in conditions of globalization, and Xi’s evolving view that China is on equal terms with the West in forging a separate identity, as he synthesizes neo-conservatism, Chinese tradition, and the theory of socialism. With this, readers are told, China strengthens its identity and its position in forging new international rules. It can defend free trade and criticize the West for protectionism, not focusing on those dissatisfied with globalization but on altering it for the benefit of developing countries.

Korea

On July 20, Georgy Toloraya wrote in lenta.ru about why North Korea’s nuclear weapons are not a guarantee of peace on the peninsula. He first faults Park Geun-hye for letting relations with the North fall to their nadir, suggesting that she had counted on regime collapse. He then details Moon Jae-in’s offer to Pyongyang, explaining that the latter is in no hurry since it seeks to resolve basic questions of security and ensure that the other side will fulfill its responsibilities. It also matters that the United States is extremely unfriendly and intent on maximizing pressure to the point of a blockade as he also pressures Beijing. Moon’s July 6 Berlin speech is faulted for only putting moves to forge a peace regime last in order of actions. Only Washington can guarantee security and thus refusal to talk to Seoul seems justifiable. Since both Seoul and Washington seek to weaken and subordinate Pyongyang, Toloraya seems to agree that there is little point in talks. Able to hold South Korea and Japan hostage, North Korea has stabilized the situation, giving it more confidence in its own security. This may offer new hope that the approach of Russia and China, as seen in the July 4 joint statement of Putin and Xi in support of a political compromise taking into account the interests of all sides, can proceed, but Toloraya puts the burden on doves in Seoul and Washington to gain ground.

Gleb Ivashentsov in Mezhdunarodnaya Zhizn’ asked if there is a way out from the Korean crisis. Arguing that North Korea is becoming the third potential opponent of the United States after Russia and China, able to wipe out Los Angeles, he found the US response utterly ineffective, just ratcheting up the rhetoric and imposing new sanctions of no effect. Meanwhile, Seoul and Tokyo are growing nervous about the US guarantee of support and willingness to put them in jeopardy for its own sake, while Beijing pressures Seoul, imposing a price on its behavior. Ivashentsov faults Washington for confidence in North Korea’s collapse solving all of its problems, blames Obama for refusing to talk to the North (ignoring attempts to do so and the North’s conditions), insists that US military threats only justify the North’s programs, argues that Russia and China are practically in full accord with only a limited effect from Trump’s appeals to them to forge a coalition of pressure, and warns that the more pressure is applied on them the more favorably they will treat Pyongyang since its preservation is of strategic value in their confrontation with the United States. Thus, Pyongyang’s behavior is understandable, it is not a threat since that would be suicidal, and the nuclear problem is readily resolvable. Proposed is a UN conference for a peace treaty, mutual arms reductions, economic cooperation, and US and Japanese recognition of the DPRK. No concern about Kim Jong-un is aired, as usual.

Vladimir Khrutalev in the August 24 Rossiya v Global’noi Politike discussed the strength of the North Koran military. Although it has aged weapons and a low arms budget, it has used the ideal terrain of its country to build a fortress and arm itself to deny the United States any chance of a successful strike. That leaves only dialogue as the way forward. In this source, too, North Korea’s military gains appear as a plus for the prospects of talks that Russia has long favored.

 

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