Why Does China Need Russia?

November 2013 | Investments

For many years, China has been the most populous country on the planet. And the world’s most populous country has gradually become more and more important within the world economy. It is obvious that the country’s territorial and infrastructural needs will only continue to grow. In this light, China’s cooperation with its neighbors is a key issue. WEJ tried to answer the question of what goals China is trying to achieve in cooperating with Russia.

It is believed that when the Chinese pursue joint projects with the Russians, they are mainly interested in territorial space. In fact, the sparsely populated regions of Eastern Siberia would not seem to be the worst choices for Chinese investment. But Moscow is very cautious about the prospects of such investment, perhaps fearing that such projects may whet Beijing’s appetite for more.

Russian President Vladimir Putin has repeatedly recognized that one of his most important foreign policy achievements is the settlement of Russia’s border dispute with China. Russia has transferred to China an area of 170 square kilometers on the Tarabarov and Bolshoy Ussuriysky islands, at the confluence of the Amur and Ussuri rivers. This territory had been the subject of a serious dispute between the two countries at the end of the 1960s. By solving this old problem, Russia has deprived China of the opportunity to make new demands. At the same time, it has removed an item from the agenda of talks that could have adversely affected the prospects of Sino-Russian cooperation.

Together and Apart

Russia and China share a common problem: the United States. Both regimes have found it more and more difficult to stomach U.S. dominance, and they dream about changing the global balance of power. As the example of the war in Syria shows (where Moscow and Beijing managed through joint efforts to prevent the intervention of NATO troops), such cooperation can bring quite tangible results. And it must be said that both countries have something to offer each other.

China needs Russian natural resources and territory to develop its economy, whereas the Russians need new markets, Chinese investments, and technology. The Chinese economic miracle has shaped Russia’s thinking, even if Russia does not want to follow everything that China has done exactly: China’s economic success has shown that it a model of national development is theoretically possible that could act as an alternative to Western democracy. This is a model that is guaranteed by the growing prosperity of the country and its citizens and that does not involve transferring the levers of power to society, which can be swayed by changing moods.

In fact, not all joint projects have turned out to benefit Russia. For example, in 2009, Russia launched the Eastern Siberia-Pacific Ocean oil pipeline, which leads to China. Construction was funded by Chinese loans, and the Russians signed an agreement pledging to deliver 300 million tons of oil over the next 20 years at $50-57 per barrel. Currently this contract is disastrously unprofitable for Moscow, since the world price per barrel is now $85-100.

There are also difficulties in the arms trade. On the one hand, the Russians remain the largest supplier of China; on the other, it is no secret that Chinese engineers are cloning Russian equipment with the aim of subsequently selling the copied weapons on the African and Asian markets. This harms Russian interests, since these are traditional “Russian” markets. According to a report issued by the Stockholm International Peace Research Institute, the export of arms from China increased over the period of 2008-2012 by 168%, meaning that Beijing is now one of the top five arms suppliers in the world. Already fears have been expressed in Russia that the Chinese will overtake Russia’s position in the near future.

In addition to these problems with oil and arms, we should also consider Russia’s negative trade balance with China and the increasing flow of Chinese immigrants to Russia, especially to Siberia. The most radical experts warn of the imminent Chinese colonization of the Far East and the “Africanization” of the whole of Russia. According to this perspective, China treats Russia like a source of raw materials and not as an equal partner, which is what the Kremlin would probably want.

Are There Grounds for Dispute?

One of the potential reasons for conflict may soon be Central Asia, which has traditionally been considered a sphere of Russian influence. However, it has now become an object of growing interest on the part of China, as proven by the fact that, for example, it has ended Russia’s monopoly on the transport of oil and gas from Kazakhstan and Turkmenistan. In addition, the overall balance of trade clearly shows that the region’s main trading partner is now China.

The Arctic may also present grounds for the deterioration of relations. China makes no secret of its interest in the region, and it has signed agreements with Norway and Canada to develop Arctic deposits. Moscow has always stated that the right to extract natural resources around the North Pole should be granted only to five countries: Russia, the U.S., Denmark, Norway and Canada. China has not been given in a place in this group, and it can hardly be expected that the current authorities in Beijing would be willing to accept this state of affairs.

However, over the last few years, strategic cooperation between Russia and China has grown considerably. This is partly fueled by heightened U.S. interest in Asia. In addition, Russia and China have been allies during the discussions of Iran and Syria on the UN Security Council. President Putin’s first foreign trip after taking office in 2012 was to China, and Chinese leader Xi Jingping returned the favor by traveling to Russia.

Already this year, Russian and Chinese officials have ratified the provisions of the Treaty of Good-Neighborliness and Friendly Cooperation Between the People’s Republic of China and the Russian Federation for 2013-2016, and they have signed 30 agreements on cooperation in the fields of technology, energy, trade and exchange of military information. It was also announced that China would provide Gazprom with a line of credit in the amount of $2 billion for a long-term contract for the supply of natural gas. In June 2013, China and Rosneft concluded a deal worth $270 billion, whereby Russia will supply China over the next 25 years with twice as much oil as before. Russia has already received $70 billion under the agreement.

Great Expectations

China is Russia’s largest trading partner, while Russia is only China’s ninth-largest trading partner. The volume of Sino-Russian trade in 2012 increased by 11.2% and reached $88.2 billion, while the volume of Chinese trade as a whole grew by only 6.2%. During their recent meeting, Xi and Putin announced that they expect the volume of bilateral trade to reach $100 billion by 2015 and $200 billion by 2020. According to Wu Hongwei, a researcher at the Chinese Academy of Social Sciences, “Sino-Russian cooperation, which is currently overly focused on the energy sector, has huge potential in the fields of agriculture, new energy resources, aviation and the military, which are all likely to act as a new impetus for future development.”

Wang Ping, President of Panjin Liaohe Oilfield Tianyi, which develops equipment for the oil industry, told WEJ that he sees Russia as the company’s main partner and consumer. According to him, the company already plans to launch a joint production facility in Eastern Siberia. In addition, the recruitment of local labor will receive priority, and Chinese specialists will be brought in to conduct job training.

Despite the outward signs of strengthening Sino-Russian relations, it is likely that in reality, bilateral strategic and economic cooperation will be a little less intense than officials are trying to make it seem. It must be understood that China is not inclined to put all of its eggs in one basket, as can be confirmed by the country’s recent moves to reach out to the United States. And yet America is inclined to trust China even less than Russia is. The old and the new giants just have too many conflicting geopolitical interests.

Text: Marina Rubanova