Challenges to the Sino-Russian Relationship

Now that the Sino-Russian diplomatic season celebrating 55 years of formal relations comes to a close, an opportunity exists to reassess the fundamentals of this dynamic and challenging relationship. After viewing Russian President Vladimir Putin’s summit with his Chinese counterpart Hu Jintao in Beijing last month, the visits of Premier Wen Jiabao and Vice-Premier Wu Yi to Moscow in September, and the Shanghai Cooperation Organization (SCO) Head of Government meeting, it is clear that despite 55 years of interaction, it is Russia and China’s perceived national self-interest that increasingly drives all aspects of their relations. And more and more, these national goals contradict one another, forcing the pair to make tough decisions. In the coming years, China and Russia will face serious dilemmas that will test the strength of their so-called “strategic partnership” and could expose underlying rifts between the two. By understanding China and Russia’s basic needs, we can more accurately predict how this relationship will evolve in the short-term and what choices and factors will most affect the ties between these two global powers.

China’s Needs

China has three basic needs it looks to Russia to fill, at least in part: military arms, energy supplies, and sources of trade. A more complicated need for international political support and leverage also exists. China’s demand for military equipment comes from its ongoing drive to reform its military into a fighting force that can repel any threat to the mainland and to develop capabilities to conquer Taiwan (including succeeding against the possibility of U.S. defense of the island). Domestic Chinese military production, while improving, is still significantly behind American, Russian, and European standards. Beijing looks to Russia to help increase its military power. On energy, China has become a major importer of oil and gas. China’s projected oil demand in 2015 will be 7.4 million bb/d (up from 3.4 million bb/d is 2002), about half of which will need to be imported. Russia, with the potential to export up to 20-30 million tones a years from its fields in Siberia, provides an attractive source for Chinese imports, a source with which the United States will unlikely be able to interfere. Lastly, China is continuously looking for new investment opportunities and foreign markets to further fuel its rapid economic growth. Russia, with its still developing economy, untapped natural resources, and open, unpopulated Western region, offers alluring opportunities for increased Sino-Russian trade and investment.

On these basic needs, China has not been provided with all it has desired. While Russia has been relatively generous with the arms it has sold to China, including most recently the delivery of two Kilo-class submarines for the Chinese navy, shortfalls, at least from China’s perspective, still exist. Russia has stopped short of providing material that is specifically designed to alter the balance of power between Chinese and American forces, such as the Granit anti-ship missile, which is specifically designed to sink U.S. aircraft carriers. Disputes over manufacturing licensing agreements and Chinese access to Russian proprietary technology have also created tension.

But it is Chinese energy demands that are currently the most pressing trouble in the relationship – especially the disruption in service created by Yukos’s ongoing legal troubles. However, Russian Deputy Transport Minister Alexander Misharin announced on September 12 that Russia will guarantee uninterrupted export by rail, pledging to deliver 10 million tones in 2005, and possibly 15 million tones in 2006. In the short term, though, China is being required to cover the cost of this export. More urgent is the ongoing dispute over the final destination of the pipeline exporting Siberian oil from Angarsk. Despite numerous agreements between the Russian and Chinese governments, and a signed deal between China and Yukos, Russia seems poised to change the export destination of this oil to its port of Nakhodka. This change will allow Japan to gain access ahead of China. While the Nakhodka option is much more economically efficient for Russia, especially given Japan’s pledge to fund the total construction of the pipeline and future exploration for additional Siberian resources, Moscow is faced with an excruciating choice. It knows that no matter what it decides, it will anger either Japan or China. While it seems inevitable that Moscow will choose to export to Nakhodka, Russia has taken several steps to try to soften the blow to China, pledging to later build a branch from the Nakhodka pipeline to Daqing in China (assuming there is enough oil available at Angarsk). Meanwhile, Russia is helping China fill its nuclear power shortfall, most actively at the Tianwan nuclear plant, and it has even been suggested that Russia may attempt to fill the Chinese-Kazakh pipeline with Russian oil and gas, though this comes with certain geopolitical risks.

China’s goal of engaging with Russia to provide continued economic opportunities for Chinese entrepreneurs has recently met with more success. Russia’s politically motivated fears of mass Chinese migration to Russia’s Far East have given way to a practical understanding that Russia needs Chinese labor. Recently, it was announced that Maritime Kray’s long-term development program envisions attracting as many as 500,000 Chinese workers by 2010 (up from 15,000 now). This is a dramatic change from the days of the “yellow peril” in the early 1990s. Additionally, Chinese-Russian bilateral volume trade is expected to reach $60 billion by 2008, up from $20 billion this year. Following the October Summit, China is planning to invest $12 billion in the Russian economy. However, President Putin has demanded this investment be in Russia’s emerging technology center and not in the natural resource sector, effectively crushing China’s expressed interest in purchasing Yuganskneftegaz, the main production subsidiary of Yukos. Related to this, China and Russia have mutually recognized each other’s market economy status, and negotiations have been completed for China’s approval of Russia’s WTO membership.

Russia’s Needs

Russia’s central need from China is money. While there is a similar demand for international political support and leverage, it is the Russian economy’s demand for continued investment that drives much of the relationship. This need is consistently met by Chinese military purchases and the export of oil. From 1990 to 2001, China bought over $10 billion worth of military equipment. This number has continued to grow in the last several years. Furthermore, Chinese energy purchases have made up a significant portion of annual turnover. These two areas, arms and oil, make up the vast majority of Chinese-Russian trade, with the sale of normal market goods making up only a small fraction. Furthermore, Russia will gain in both its trade relationship with China and with the rest of the world when it eventually joins the WTO; a goal that is more likely now given China’s recent support. While this support has cost Russia, especially in the area of a more lenient visa regime, Moscow is still in a very enviable position.

In pure money versus material calculations, it seems that China needs Russia more than Russia needs China. While Russia needs Chinese investment to keep its arms industry alive, China has no alternative but to buy from the Russians (as long as Europe and the United States maintain their embargo). Without Russian arms, China’s national security is in serious peril. Similarly, Chinese energy demand drives its thirst for Russian resources. However, in a global market, Russia has no problem finding buyers for its oil. China, though, does have a serious problem finding and securing sources of energy. This purely material calculation is overly simplistic, though. For a true understanding of Russia and China’s position vis-à-vis each other, one mush consider the much more complicated calculation of each nations’ need for political support and leverage.

International Political Support

Mutual international support between China and Russia has been a key component of their relationship for most of the last 55 years. In China’s post-Tiananmen international isolation, Russia was Beijing’s only true friend. The two have continuously sought to support each other in the international arena on important matters, and have equally sought to find common positions on the major international issues of the day. This support, and the perceived harmony in Sino-Russian thinking, has been an effective bargaining tool for each in its dealing with the West.

By and large, this mutual support has created significant goodwill between China and Russia, and has helped advance their specific national interests. This has included Russia’s support for China’s Taiwan and Xinjiang policies, China’s support for Russia’s incursion into Chechnya, and their common positions on North Korea and Iran’s possible nuclear development.

However, in recent years, this aspect of the relationship has suffered several setbacks. Chief among these is disagreement over the response to America’s proposed missile defense system. While both initially protested the development of this system and the abrogation of the ABM treaty, China was left standing alone against the U.S. after Russia realized that it was not threatened by the system and could gain more in international political capital by not openly opposing it. Many Chinese leaders and scholars have reported feeling rejected and hurt by Russia’s move, and it became a significant event symbolizing the changing calculus in Sino-Russian relations. The two would increasingly make choices that best served their own interests, and continuously sacrifice the more ethereal elements of the relationship. This trend has been played out in the negotiations over WTO entry, direction of energy exports, and sophisticated arms sales.

Similarly, several issues related to the development of China’s relationship with Central Asia could further weaken the international political support given to one another. China and Russia jointly founded the Shanghai Cooperation Organization (and its predecessor, the Shanghai Five), as, among other things, a mechanism by which China could engage in the region. While the SCO promotes China’s entry into Central Asia, one theory is that the SCO is a way by which Moscow can contain China’s Central Asian engagement. This idea has gained support recently, as made evident by Russia’s rejection of China’s proposal at the Heads of Government meeting to speed up region wide economic integration. According to RIA Novosti, an unnamed Russian official stated that, “We turned down the proposal in mild terms as it was clearly aimed at infiltrating many of our markets.” Furthermore, Russia has stepped up its own bilateral and multilateral cooperation with Central Asian states: beefing up its forces in Kyrgyzstan and Tajikistan and becoming a full member of the Central Asian Cooperation Organization. All this paints a picture of Russia becoming increasingly worried about China in Central Asia and not interested in offering the kind of support China would like. However, this dynamic is still evolving and it is unclear how Moscow will react to China’s ongoing encroachment into Russia’s “back yard.”

What is clear, though, is that China and Russia’s mutual political support is increasingly guided by one or the other’s relationship with the United States, and, to a lesser degree, Europe. Nixon’s brilliant calculation that Russia and China fundamentally face away from each other still holds true today. Russia sees its future in the development of ties to Europe and the West, while China focuses intensely on its place in Asia. In pragmatic terms, when China realizes it can gain more from America by abandoning a common position it holds with Russia, it will do so. And Russia will do the same concerning a Chinese potion. Conversely, when the two realize that they will achieve the most through a joint position, they will stand against the United States. This was evident last year when Russia attempted to stand in the way of America’s invasion of Iraq, until the United States promised to honor Russia’s existing oil contracts. China, on the other hand, remained quiet, and seems to have won American approval to retain control over its small Iraqi fields. On the other hand, Russia and China have united in a common bargaining position regarding North Korea as a way to push the United States to a negotiated settlement of the conflict. The open question, though, is will China and Russia be there for each other when it counts? Moscow and Beijing would like to think so, but if the dispute involves the United States, it is doubtful that either will support the other over their own national interest. This question increasingly plagues the Sino-Russian relationship and challenges the supposed strong foundation on which it is based. Only time will tell if this marriage of convenience can make it to a diamond anniversary.