July 27, 2017

The Threshold of Geopolitical Changes in the China-Russia-Ukraine Triangle

Since the collapse of the USSR, the Russian Federation's leadership's main political goal has been restoration of Russia as a “great world power”. To the fullest extent, this goal was reflected in RF President V. Putin's neo-imperial initiative to create the Eurasian Union (EAU), which was supposed to create a counterbalance to the European Union, and later to the entire Western world.

It was Ukraine's refusal to join the Customs Union as the first step in building the EAU, that served as an excuse for Russia's attacking our country in February 2014. At the same time, that attack had wider goals and was meant to block Ukraine's European and Euro-Atlantic courses and to restore Russian control over it. However, Russia failed to achieve what it wanted. And the Putin regime's armed aggression against Ukraine even reduced Russian influence in the post-Soviet space, which actually thwarted the entire process aimed at creating the Eurasian Union.

Note:

The Eurasian Union is a geopolitical project for restoration of Russia's imperial hegemony (after the collapse of the USSR, through the following stages of creation: the Commonwealth of Independent States /CIS/, the Union of Belarus and Russia, the Customs Union, the Eurasian Economic Community /EurAsEC/, the Eurasian Economic Space /EAES/ the Eurasian Economic Union /ЕАEU/), created by V. Putin. According to analysts, the Eurasian Union is a Russian attempt to create an antithesis to the European Union.

Unexpected for Russia, the firmness of the positions of Ukraine and its Western partners affected the duration of the Russian-Ukrainian confrontation, including because of the sanctions imposed by the United States and the European Union, which have markedly undermined the Russian economy and Russia's image. Thus, already in 2015 — a year after the introduction of sanctions — Russia's total GDP fell by more than 4 %. At this, the decrease in production of automobile, aviation and other high-tech industries amounted to 30–90 %, the volume of foreign trade of the Russian Federation decreased by approximately 30 %, and of internal — by 20 %.

Despite Moscow's attempts to stabilize the Russian economy, including through emergency anti-crisis measures (among other things — the massive sale of state property and the use of reserve funds), such processes were also observed in 2016–2017. For example, by the results of 2016, Russia's GDP fell by another 1 %. Similarly continued the decline in the volume of Russia's foreign and domestic trade.

The aggravation of economic problems in Russia had a negative impact on the Eurasian Economic Union (EAEU), created on the basis of the Customs Union, which began to work on 1 January 2015 (since mid-2015 it includes Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan). In particular, in 2015, the volume of mutual trade of the member countries of the EAEU, compared to 2014, decreased by 30 %. In particular, the trade turnover between Belarus and Russia decreased by 40 %, between Belarus and Kazakhstan by 30 %, and between Russia and Kazakhstan by 25 %. The GDP of the EAEU member countries also declined by an average of about 4 %. Negative trends in the activities of the EAEU, as well as in Russia itself, have been observed in the future.

Russia’s project of the “Eurasian Economic Union”
Russia’s project of the “Eurasian Economic Union”

The systematic pressure from the USA and the EU has made Moscow look for alternative partners, leading a policy independent from the West. At the same time, because of the complicated situation and the growing contradictions within the Eurasian Economic Union, Moscow's partners in this organization also decided to reorient themselves to other countries. They chose to rely on China as the leading power in the world with a strong economic potential.

Beijing used the situation for implementation of its strategic initiative “The Belt and Road”, which provides for the spread of Chinese influence to neighboring regions with the prospect of transforming the PRC into a leading center for the globalization of the world economy. At this, the economic prerequisites for deepening its trade and economic cooperation with the countries of the former USSR, including the members of the EAEU, were reinforced by the clearly worked out strategy of the PRC's actions in the post-Soviet space. In this context, important is the PRC's growing leading role in international (sub-regional) organizations, such as the BRICS Group (Brazil, Russia, India, China and South Africa) and the Shanghai Cooperation Organization (SCO).

China’s “The Belt and Road” Initiative
China’s “The Belt and Road” Initiative

The basis of such a strategy was the principle of promoting Chinese interests “from near to distant”. Namely: the expansion of ties with neighboring CIS countries, and then with other former Soviet republics (taking into account their importance for the PRC). For this purpose, the situation in each country of the former USSR, the role and place of these countries in the system of regional and world relations were carefully studied.

By contrast, Russia is building the Eurasian Economic Union as a political and economic counterweight to the Western world and is using it as an instrument to strengthen its positions in confronting the United States and Europe. V. Putin himself considers the creation of the Eurasian Economic Union (and on its basis — the Eurasian Union) a kind of response to the enlargement of the European Union in Eastern Europe. In his opinion, the Eurasian Union should become the Russian antithesis to the European Union.

Russia and China differently see the mechanisms of integration and cooperation in the EAEUAccording to independent experts, Russia and China differently see the mechanisms of integration and cooperation in the EAEU. At this, they point out that China's new (creative) models of cooperation with its economic partners is more attractive than Russia's old approaches. That is, if Russia is interested and insists on cooperation between the PRC-EAEU (the so-called “block cooperation”), then China considers bilateral trade and economic cooperation with each member of the union more effective.

 

In recent years, such an approach has allowed the PRC to significantly increase its positions in the economy of both Russia and other post-Soviet countries. According to some estimates, China already controls about 20–30 % of the assets of the (key for Russia) oil and gas industry. Taking into account the Russian government's plans to further privatize state property, in the short term this indicator can reach 50 % or more. In particular, it is planned to expand cooperation between Russian Rosneft and Chinese CNPC, CNOOC and Sinopec companies in the development of oil and gas fields in the shelf zones of Russia and in Eastern Siberia. At this, Chinese companies are replacing western concerns Statoil, Eni and ExxonMobil, which has ceased cooperation with the Russian Federation due to US and EU sanctions.

China is also in the first place in Russia's foreign trade with a share of about 15 %. In this direction, it is consistently winning the niche of the European Union, which has reduced its share from more than 50 % in 2013 to 44 % in 2017. Given the USA and the EU's principled position in maintaining the sanctions against Russia, as well as the latter's policy of reorienting trade and economic ties to China, this trend is inherently stable and irreversible. At the same time, despite the stable structure of Russian exports to China (mainly oil, gas and timber), the increase in bilateral trade not only does not contribute to the development of the Russian economy, but also leads to its de-industrialization when Russia turns into the PRC's raw material appendage. And China has been consistently strengthening relations with its closest neighbors — Kazakhstan, Kyrgyzstan, Uzbekistan and Tajikistan, as well as with Azerbaijan, Georgia, Armenia, Ukraine and Belarus, which are important for it in terms of their transit, scientific, technical and resource potentials.

At this, China's absolute dominance over Russia in the financial and economic sphere (China's GDP is 11.2 trillion US dollars, while Russia's — 1.3 trillion US dollars) actually allows the PRC to dictate its terms in relations with Russians, including in the post-Soviet space. Using its potential, China, has actually moved from recognizing the territory of the former USSR as the “sphere of Russian influence” to leading its policy in the region with a purely nominal consideration of Russian interests. In particular, the PRC's leadership has officially promised to coordinate the development strategy of the “Belt and Road” initiative with the EAEU, but cooperates with the members of the Eurasian Economic Union and other CIS countries mainly on a bilateral basis.

Dynamics of the Russia and China’s GDP
Dynamics of the Russia and China’s GDP

So, today, China is confidently and consistently displacing Russia from the main sectors of the economy and markets of the post-Soviet countries, which in fact are passing into the sphere of its influence. This is evidenced by the results of extensive studies by Russian experts, published in the report of the Institute of Economics of the Russian Academy of Sciences “China's Strategy for the Development of the Post-Soviet Territories and the Future of the Eurasian Union”.

According to the report, the PRC's main instrument in implementing the strategy for the development of the post-Soviet territories is trade with the countries of the former USSR. From 1992 to 2016, China's total trade with Central Asian countries grew more than 100 times and in some cases exceeded their trade with Russia. To date, China's share in Kyrgyzstan's foreign trade is 57 %, while Russia's — 17 %; in Tajikistan's — 42 % and 18 %; in Uzbekistan's — 21 % and 20 % respectively. During the same period, China's trade with Armenia increased 50.5 fold, with Georgia — 18-fold.

China's investments in the economies of the countries of the former USSR are also increasing rapidly, beginning to exceed Russia's investments. Thus, the volume of China's accumulated investment in the economy of Kazakhstan is 12.6 billion US dollars, while Russia's — 8.9 billion US dollars; of Tajikistan — 1.16 billion US dollars and 0.986 billion US dollars; Uzbekistan — 7.6 billion US dollars and 6 billion US dollars, respectively. At this, in 2016, the inflow of Chinese funds into Kazakhstan exceeded this indicator of 2015 by 7 times.

The PRC also develops its investment cooperation with other members of the EAEU. Thus, in 2015–2016, agreements were reached on deepening investment cooperation between China and Belarus. In this regard, Belarus is seen as a “logistics intersection” between the West and the East, as well as the Black Sea and Baltic regions, into whose infrastructure China is ready to invest. It is also very important for Belarus to implement a joint investment project to create a “Big Stone” industrial park. Armenia is the PRC's new investment partner. In particular, the issue of the China Machinery Engineering Corporation's participation in the development of the Armenian infrastructure and energy is being considered.

Besides, China is one of the largest creditors of the Central Asian countries, and this leads to a rapid increase in their debt dependence on the PRC. For example, at present, China's share in the external public debt of Tajikistan has already reached 43 % (0.9 billion US dollars), Kyrgyzstan — 35 % (1.2 billion US dollars), Kazakhstan — 8 % (13.3 billion US dollars). At this, the share of Kyrgyzstan's external debt to Russia is only 7.2 %.

Indicative is the intensification of trade, economic and investment cooperation between China and Ukraine, which is taking place against the background of Russia's economic wars against it. Today, the total amount of Chinese investments in Ukraine is about 7 billion US dollars, which is why a wide range of joint projects are being implemented in the spheres of infrastructure development, energy, aviation and shipbuilding, and agriculture. China's share in Ukraine's foreign trade already makes about 10 %, while Russia's share has decreased to 8 %.

According to Russian experts, all this has allowed China to create a powerful basis for integration cooperation with the countries of the former USSR, including the members of the EAEU, and to seize the initiative from Russia in this sphere. At this, Moscow has completely lost the opportunity to consolidate the role of the main integration center in the post-Soviet territories within the framework of the Eurasian Union, which in fact has already become an integral part of the Chinese initiative “The Belt and Road”.

Meanwhile China's increased presence in the Russian economy allows it to influence the policy of the Russian Federation. For one — Moscow's forced support to the Chinese initiative “The Belt and Road”, which completely contradicts Russia's interests.

By the way, against the background of the seizure of the Ukrainian Crimea, Russia is giving away to China its own territories in the Far East. Thus, back in 2004–2005, it handed over to the PRC some islands on the Amur River near Khabarovsk with a total area of 17.4 thousand hectares. In 2010–2011, Russia leased to the PRC about 1.5 million hectares of taiga (for deforestation) and agricultural land. In 2014, this practice was legitimized by the law “On Territories of Advanced Social and Economic Development in the Russian Federation”. Based on this law, an agreement was reached to lease more than 300 thousand hectares of land in the Trans-Baikal Region of the Russian Federation to the PRC for a period of 49 years.

In 2004–2005, Russia handed over to the PRC some islands on the Amur river near Khabarovsk
In 2004–2005, Russia handed over to the PRC some islands on the Amur river
near Khabarovsk

That is, V. Putin's Eurasian project had to be the final stage of economic, political, military and cultural integration within the framework of one pole in the post-Soviet space with Russia at head. At the same time, without Ukraine's participation in all sorts of supranational integration projects, there will be neither the mythical “Russian world” nor the real Eurasian Union, let alone the natural “unity of the Slavic peoples” or the extremely important confidence of Russian voters in their presidential candidates, who could not “resolve the Ukrainian question”.

Z. Brzezinski believed that Ukraine could become Russia's main “prize” in its “new empire”. In his book “The Grand Chessboard” he wrote: “Ukraine, a new and important space on the Eurasian chessboard, is a geopolitical pivot because its very existence as an independent country helps to transform Russia. Without Ukraine, Russia ceases to be a Eurasian empire. Russia without Ukraine can still strive for imperial status, but it would then become a predominantly Asian imperial state”.

In fact, this testifies to the complete and final failure of the goals of Russia's armed aggression against Ukraine, which not only did not allow Moscow to establish its control over it, but also significantly and permanently undermined the international positions of the Russian Federation and its economy as a result of the Western political-economic sanctions.

According to leading experts, Russia's current neo-imperial policy in the territories of the former USSR is already in conflict with the interests of China, which is objectively interested in stabilizing the situation in the region as a precondition for its successful business. That is why, after China over the next few years has completed the actual “economic occupation” of Russia, it can make the leadership of the Russian Federation change the political course. And, unlike the USA and Europe, China will not hesitate to use all possible methods against Russia to achieve its goal.

 

So, against the background of Russia's continuing armed aggression against Ukraine, launched in response to our state's refusal of to join the future Eurasian Economic Union (EAEU) and Ukraine's plans for European integration (including through signing the Association Agreement with the European Union, which makes it possible to move from partnership and cooperation to political association and economic integration), it is indicative that China has actually established control over the EAEU in the trade and economic spheres.

The Putin regime's adventure against Ukraine gave the PRC a real opportunity to strengthen its positions in both the Russian Federation and other countries of the former USSR, which nullifies all Moscow's attempts to build the EAEU and, in the future, the EAU, and to revive Russia as a “great world power” or a new empire.

To all this, in fact, Russia is gradually turning into the PRC's “vassal” — that is, into a state with limited sovereignty, forced to make concessions to the Far Eastern neighbor (including territorial ones) and to move in the wake of its policy. At this, no attempts by Moscow to get out of this situation, including through the settlement of the conflict around Ukraine or the possible achievement of certain compromises with the West, will not bring the desired results.