China and the World

From Russia with love

China stands to benefit from Putin’s clash with the West

RUSSIA-CHINA-PIPELINE

Signing up: Putin wants more gas deals with his “Chinese friends”

In January 2013 the first episode of The Americans aired on television in the US. Created by former CIA agent Joe Weisberg, the drama features two KGB officers posing as an American couple in the Washington suburbs. Their mission is to protect Mother Russia and undermine American capitalism.

Back in 1982 – when the show’s action begins – the Cold War was very much a hot topic. When Weisberg first had the idea for the series studio bosses seem to have viewed it as more of a period piece. But by the time the second season ended in May this year, the subject matter seemed more timely. Vladimir Putin’s incursion into the Crimea (which he annexed in March) and the violence in eastern Ukraine have stirred memories of a more confrontational past among NATO members.

When the Cold War began, Moscow welcomed a new ally that Washington feared could alter the balance of power: Mao Zedong’s red China.

In a 1950 speech Richard Nixon warned congressmen that five years earlier the Soviet orbit had encompassed 180 million people. With Mao’s victory, the grouping had soared to 800 million.

In demographic terms, the future president said, the “odds are five to three against us”.

As concerns grow about an apparently expansionist Russia today, will history repeat itself as Moscow tries to forge a new axis with Beijing?

There is a danger of over-egging the historical comparisons. No formal treaties are involved on this occasion; whereas back in 1950 Stalin and Mao signed a military alliance pledging to defend the other.

Instead Putin’s priority is to push for closer economic ties with China, especially as he weighs the impact of Western sanctions and looks east for a counterweight to cushion the blow to the Russian economy.

A key part of this plan is to sell more Russian gas to China, shifting its reliance away from the European market (see WiC239). Earlier this month, the Russians broke ground on the Power of Siberia pipeline that is set to export 4 trillion cubic metres of gas to China over 30 years. At the ceremony Putin referred to “our key partner China” and a few days later he offered Chinese firms a stake in the Vankor oil and gas fields in Eastern Siberia.

As he told the media at the time: “We generally take a very careful approach to the approval of our foreign partners, but of course, for our Chinese friends there are no restrictions.”

There isn’t much need for decoding there: Putin could hardly be making his desire to work with Xi Jinping’s government more obvious.

Dmitri Trenin, director of the Carnegie Moscow Centre, reviewed the changing geopolitical world in the China Daily last week.

“The apparently long-term rupture of Russian relations with the West offers an opportunity to the Chinese leadership to enhance its already close relationship with the Kremlin,” he wrote, “and thus turn the global balance in its favour – not unlike former US president Richard Nixon and former secretary of state Henry Kissinger who reached out to Chairman Mao Zedong in 1972.

“The Russians, angry with Washington, are now more amenable to giving China wider access to their energy riches and their advanced military technology. The Western sanctions pushing Russia out of the international financial system are also making Moscow more ready and willing to back the Chinese yuan against the US dollar.”

The Russians look keen to point to any evidence of cooperation with the Chinese, mindful of the potential impact it might have on the calculations of politicians and business leaders in the US and Europe. Of course, it helps if the two sides can find common interests and one example this month is civil aviation, where both countries resent the dominance of Airbus and Boeing. Hence the Russian media reports about a new deal with Beijing to develop a long-range wide-body aircraft together. The plan, which was announced by the Russian deputy prime minister responsible for the defence ministry, is to upgrade a version of the Ilyushin II-96. But the new jet will be made with the help of China’s aspiring aerospace giant COMAC. The project, said to be starting out with commitments of $8 billion in investment, plans to make the new aircraft in China, with a potential release date in 2023.

Perhaps the deal suggests that the Chinese have given up on the idea of a fully homegrown jet, and will rely on more proven Russian aerospace technology instead. If so, the Chinese press haven’t discussed it. Probably they are at bit of a loss about what to make of this latest announcement. After all, COMAC unveiled its own plans to build the C919, a Chinese-designed competitor to Airbus and Boeing’s wide-body jets, in 2008. Last December we reported that the launch date for the new aircraft looked like being delayed (see WiC220) and that the first customer for the C919 – Chengdu Airlines – isn’t likely to get one before 2018.

Paradoxically, China’s media has been dedicating more serious discussion to some of the lower-tech opportunities thrown up by Russia’s cold-shouldering in Europe and North America. Moscow’s tit-for-tat decision to ban imports of American and EU agricultural products has Chinese farmers and food processing firms excited. Mudanjiang Daily says that China Baorong Corporation has already set up a new logistics centre on the Sino-Russian border to export more food to its northern neighbour. It adds that Dili Group has plans for something similar in a new cross-border trade zone that is also being established.

“Considerable volumes of contracts” were signed with Russian parties at a trade fair in Heilongjiang province in July for the export of frozen and preserved foods, with a focus on fruits and vegetables, the newspaper reports.

Heihe city in Heilongjiang has also said that work is underway on a 60,000-square metre fruit and vegetable logistics park to facilitate greater exports to Russia.

Despite signs that trade ties are growing stronger with the Russians, the Global Times called for as sense of caution in moving closer to Moscow. “For the booming development of Sino-Russian relations, we need to have a sober evaluation. China and Russia are friends on strategic cooperation and mutual support, but China and Russia are not allies like Japan and the US. Sino-Russian trade should be encouraged to grow more based on market factors than political factors. It must be noted that no matter how good Sino-Russian relations are, the bilateral trade relations have many uncertainties.”

The newspaper – often a tub-thumper against the West in cases in which it feels that Chinese interests have been slighted – was unusually circumspect in its assessment of the current situation. One of its concerns is that selling fruit and vegetables to “help Russia” might be perceived wrongly in the West. Indeed it warns that any new efforts that China makes that seem to show it siding with the Russians carries the risk that “the US would deeply hate us and Russia would not necessarily appreciate us”.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.