China and the World

Bear hug

Russia wants China’s cash – but is also anxious about Beijing’s rising power

Bear hug

Pipe dreams: Russia’s Vladimir Putin in talks with China’s Hu Jintao

On three key occasions Russia has had a decisive impact on China’s worldview.

The first was in 1689 when both countries signed the Treaty of Nerchinsk. It was a humiliating moment for Chinese mandarins, schooled in Middle Kingdom thinking. For the first time they recognised the sovereignty of another nation rather than designating it a mere tributary.

The second was in 1917 when Russia’s revolution proved the catalyst for China’s own dictatorship of the proletariat in 1949.

And the most recent was 1989, when Mikhail Gorbachev allowed the Berlin Wall to fall, a move that would result in the loss of Communist Party control in the former Soviet Union.

Beijing policymakers then drew a vital lesson from Russia’s fall from superpower status: that its political reforms and rapid economic overhaul brought gangsterism and weakness. China instead took a different course, embarking on sweeping market reforms but maintaining strict political control. The strategy was that rapid GDP growth would validate the Communist Party’s right to govern.

Russia, then, has arguably had a greater influence over China than most other foreign states. And last week’s visit to Beijing of Russian prime minister Vladmir Putin has put the enigmatic relations between these neighbours back in the spotlight.

“Russia’s strength is at a historic low tide,” pointed out Xinhua. But the state news agency went on to warn: “Its relationship with China’s interests will be complex.”

The Global Times also thought it was significant that China was the first country that Putin had visited after announcing he’d run (yet again) for the Russian presidency. The newspaper thought the point was clear: Russia would be focusing on relations with China for the next 12 years.

That would not be a great surprise. Last year China became Russia’s biggest trade partner, and this year the pair want to increase trade to $70 billion. Channel News Asia reports that both countries want trade to grow to $100 billion by 2015.

As the world’s second biggest economy, China looks to be the heavyweight in the pairing. But Russia does have something the Chinese badly want: oil and gas. For Putin’s visit, Beijing was ready with sweeteners. There were $7 billion in trade pacts, plus China’s sovereign wealth fund CIC announced it would inject $1 billion into the newly launched Russian Direct Investment Fund (RDIF). This vehicle has Putin’s backing and is designed to encourage foreign investment in Russian industry.

Kiril Dmitriev, the RDIF’s general manager, told Xinhua that CIC was being viewed as a role model: “We are learning from CIC’s operating experience and applying these experiences to the operation of the RDIF.”

The biggest potential deal remained unsigned, however. Since 2009 both governments have been working on a natural gas contract involving Gazprom and CNPC. This has been mired in disagreements over pricing, with the Russians wanting to sell gas at $300 per cubic metre, but the Chinese willing to pay closer to $200. The stakes are high, with the 30 year long arrangement estimated to be worth $1 trillion to Russia.

During his visit Putin said progress had been made in the talks on the deal and that they were now into their “final stages”. China is thought to have upped its offer to $250 per cubic metre. He also said that an oil dispute has been settled (Russia has been selling China 300,000 barrels per day since January but complains it has been underpaid to the tune of “tens of millions of dollars”).

How did the trip play back home to Muscovites?

Rather ambiguously: Russia’s RT television station described Putin as being “in the red dragon’s warm embrace” and, for a Russian leader, a rising China is clearly a dilemma, with economic benefits weighed against balance of power concerns.

Russians tend to resent Chinese moves in Central Asia, for example, a zone they traditionally consider their own sphere of influence.

Further to the north east, swathes of Siberian territory near the Chinese border also have a complex history, and Sino-Russian ties have often been fraught.

In an article last month, China Entrepreneur magazine visited the border city of Blagoveshchensk. For most of the Qing Dynasty it was part of China, and the area was known as Hailanpao. That status changed in 1856 when Cossack troops occupied the town, forcibly relocating Chinese inhabitants south of the Heilongjiang River (called the Amur by Russians). In 1900 the ‘Hailanpao Massacre’ then occurred, an event masked by the chaos of the Boxer Uprising. “The Russians took advantage of the situation by launching savage attacks along the Amur River on the frontier; Chinese sources said more than 15,000 local residents were killed,” writes Jonathan Fenby in The Penguin History of Modern China.

For the next 90 or so years few Chinese would inhabit the area. That changed in 1989 when an entrepreneur named He Wenan arrived from Fujian to work as a labourer in the construction industry. Through hard work, He soon came to dominate the business life of Blagoveshchensk. He now owns the Huafu Centre, as well as the city’s chief landmark, the Asian Hotel, as well as several shopping malls, apartment blocks and a granite mine. According to the magazine, the “rich, mysterious figure” is worth billions.

Also notable is the formidable Chinese presence in the strangely named Friendship Library – in fact a wholesale market for fruit and vegetables now one of the largest in the region. Local law states that each stall must employ a Russian, and indeed they can be seen doing most of the heavy lifting. But the owners of the stalls are Chinese, points out the magazine, and source their produce across the border to sell inside Russia.

Hence Blagoveshchensk is now Sinofying once again. Of the city’s 230,000 inhabitants, over 10,000 are now Chinese. Alongside the Orthodox church and the statue of Lenin, there is also a Chinese pavilion, as well as enough apartment blocks built by Fujianese and Shandongese entrepreneurs to make it look like any other city in China. It takes just 15 minutes to get back into China from Blagoveshchensk. Moscow is 6,000 kilometres away.

The Russian capital is also somewhat distant in superpower terms, wrote the Global Times in an editorial last week. “China may become a ‘superpower’ in the eyes of the world, but this possibility is much further away for Russia,” it warned. “Today’s Russia has gradually adapted to the power ‘equality’ between China and Russia. But if China’s national strength goes significantly beyond Russia, the social and psychological impact on Russia cannot be determined.”

The Moscow intelligentsia still recalls that in the 1950s Russia sent advisors to China to explain how best to modernise its economy and build new industries. But as discussions over oil and gas megadeals continue, its current nomenklatura must contemplate instead how Russia best hitches itself to Chinese growth, perhaps ending up as China’s Saudi Arabia to the north.

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