Independent Analytical Center For Geopolitical Studies

The Asia-Pacific Region today is a place where, on the one hand, China, as the second superpower of the world, is flexing its ocean muscles, and on the other hand, Obama's Administration pursues a policy of “rebalancing” (or of “Pacific Pivot”) which often is called the policy of containment of China. And if the US strategy has yet to take shape, China for quite a long time now has been demonstrating its ambitions to its neighbours. For example, in late 2013, Beijing made nervous Japan and South Korea, when the airspace over the East China Sea has been announced the Chinese “security zone”.

So, the current development of political and economic processes in the Asia-Pacific Region (APR) is characterized by the established tendency to further dissipation of the world centers of power, shifting to the Asia-Pacific Region due to the increasing role of China and India, Russia's attempts to increase its influence on the process of redistribution of the balance of forces in the region and also because of the relative decline of US activity in the region due to situational re-orientation to Eastern Europe as a result of the Russian Federation's aggression against Ukraine.

It is assumed that the main risk for the Asia-Pacific countries is the growing dependence of the rate of development of the regional economy on security factors. And further deepening of territorial disputes between key players will take place against the background of escalating arms race that will not allow to establish joint projects and strengthen cooperative intergovernmental relations.

During the actual reformatting of the traditional system of international relations because of the Russian aggression against Ukraine, for key regional players, primarily China, Japan, Korea, India, Indonesia and Malaysia, has become important the strategic process of self-identification and prediction of specific economic gains and losses from the chosen position in relation Russia's breach of the world security system, principles of the maintenance of international peace and stability. This is the main reason due to which competition between Chinese and American models of transformation of political, economic and security processes in the APR has increased, which leads to stagnation of initiatives both within APEC and within the Trans-Pacific Partnership (TPP).

Russia's annexation of the Crimea and its aggression in eastern Ukraine are now viewed by most countries in Southeast Asia, especially by Vietnam and the Philippines, as a factor provoking building up of China's “combative” rhetoric in its relations with these countries within the framework of further solving the issues of disputed territories in the South China Sea.

Note: In May 2014, China began oil production on the shelf of the South China Sea in the disputed with Vietnam area. By the way, the border conflict in this area has already a forty-year old history. This time, the official Hanoi tried to block the work of the Chinese oilrig “Haiyang Shiyou 981”, set in the Paracel archipelago (Paracel Islands is a small-uninhabited archipelago of about 250x100 km of Tonkin Sea. There are no harbors or bays, but there is an airport). Both parties sent warships to the conflict zone, but there was no use of firearms, just water cannons. At this, the incident on the sea was accompanied by pogroms of Chinese plants and factories in Vietnam. At first glance, the oil field is disputed as part of the 200-mile zone of Vietnam and China. However, according to the Law of the Sea, it belongs to Vietnam, as it is on the edge of its sea shelf. This time, China acts solely from the position of strength. Moreover, Beijing intends to mark out the border along the coasts of all countries, bordering the South China Sea, including the Spratly archipelago, located at a distance of a thousand miles away from China. If this happens, China will capture 80 % of the sea surface. According to scientists, oil reserves in the South China Sea range from 23 to 30 billion tons, gas reserves — about 16 trillion cubic meters. At least 70 % of hydrocarbon reserves are available on the deep shelf.

 

This, together with the long-term China-Japan conflict over the Spratly and Senkaku Islands in the East China Sea and the permanent instability on the Korean Peninsula due to the aggressive policy of the DPRK, determines a certain increase in risk when the South East and East Asia turn into a zone of military conflict, and forms of Chinese-US confrontation in the Asia-Pacific Region get radicalized.

Note: Spratly archipelago is located in the south-western part of the South China Sea and consists of more than one hundred small islands, atolls and reefs. The total area is up to 400-thousand square kilometers. Currently there are four airfields on the islands; on 21 islands of the archipelago are located Vietnam's military bases, on eight islands — The Philippines' garrisons. 3 islands are controlled by Malaysia. Taiwan controls the key and the largest island of the archipelago, where it has placed its military- air and naval bases. In 2012, on one of the islands China built the city of Sansha, with the population of 1,000 people, having deployed a garrison of the “division level” which fully controls, according to some sources, from 3 to 9 islands. Brunei claims its right to the Spratly archipelago too. Everything is explained by deposits of oil, gas, phosphorus, and fish stocks. Besides, through the archipelago there go shipping routes of fuel supplies to East Asia. At the beginning of 2000s Beijing said that navigation in this area is impossible without its permission. Then, in 2011, China announced about its right to conduct a search of all ships passing through the Spratly. However, China has never used this right, but it has not abandoned it either.

 

Policy of extra-regional players

USA

Despite the forced shifting of the official Washington's geopolitical focus of attention from the Asia-Pacific Region to the European continent (where the Russian-Ukrainian conflict is flaming up) and the significantly exacerbated situation in Syria and Iraq because of the actions of the “Islamic State”, the USA's unquestionable strategic priority remains the policy of containment of China.

Note: The American military and political leaders have reached a consensus about the fact that the intense process of transformation of the PRC into a military-political and economic superpower is a key threat to US national interests. Therefore, within the framework of the declared strategy of Obama's administration to “return to Asia”, containment of China should be carried out by the USA's increasing military pressure along the borders of China, transport and transit isolation of China, creation of anti-Chinese coalitions with key regional players, as well as by limiting Beijing's access to the global resource base, primarily to hydrocarbons and modern technologies. This, in theory, should slow its acceleration in development.

 

At this, the US side believes that quite a large threat to its national interests in the long term is creation of a political-military alliance between China and the Russian Federation.

Taking into consideration that the Kremlin today is limited in its forms and methods of counteracting the policy of Western countries, reinforcing the economic isolation of the Russian Federation, Moscow's moving towards Beijing is regarded by Washington as such, that is able to accelerate the growth of China's military power and geopolitical weight, which in the future will approach the current level of the USA. This, in turn, will force the USA to radically rethink the doctrine of containment of China in order not to lose the strategic initiative in the current Chinese-American status quo.

The official Washington is forced to resort to costly diplomatic and economic policies for the international isolation of Russia, counteracting China and strengthening the unity of countries participating in the so-called “anti-China coalition” (Japan, Philippines, Republic of Korea), and of the oriented to them regional players from ASEAN (Malaysia, Brunei, Thailand, Singapore, Vietnam to some extant).

In these circumstances, the USA has stepped up cooperation with its allies in the Asia-Pacific Region in an effort to consolidate them to develop a common anti-China position, as, in particular, is evidenced by Obama's tour of the countries of the region in 2014 (Japan /April 23-24/, South Korea /April 25/, Malaysia /April 26-27/, Philippines /April 28-29/).

In parallel, the USA, supported by the EU, is trying to bring China to participate more actively in the resolution of the Russian-Ukrainian crisis, which, according to the American side, will partially remove terms of formation of China-Russia alliance. To do this, Western countries at the Chinese direction are trying to do the following:

• to limit the Kremlin's abilities in ensuring diversification of energy supplies (oil and gas) by increasing exports to the PRC's domestic market.
• to convince the official Beijing to use its influence on the Russian Federation to de-escalate the situation in Ukraine.

Thus, the main results of the meeting between US President Barack Obama and the head of the PRC Xi Jinping (March 24 within the framework of the Hague Summit on nuclear security) are the agreements on:

• intensification of negotiations on the conclusion of an investment agreement against the background of positive assessments by the leaders of the current state and prospects of trade-economic and investment cooperation, as well as the American side's declaration of intentions to create conditions for fair competition and investment activity of Chinese enterprises in the United States;
• recognition of “important common interests in the Asia-Pacific Region”, demonstration of readiness to intensify dialogue and co-ordinate steps to ensure peace, stability and prosperity of the region. At this, Xi Jinping expressed readiness to form, together with the United States a new model of relations between big states and to resolve problems in order to stabilize the development of bilateral relations;
• intensification of contacts of Defense Ministries of the United States and China to accelerate the process of establishing a mechanism of mutual informing on important hostilities;
• reaching a consensus on the need to maximize the use of the mechanism of annual meetings between the Ministry of Public Security of China and the US National Security Agency in order to counteract terrorism (against the background of the preparation of a joint statement on the result of the meeting, with the assessment of any of its forms);
• further cooperation to struggle against climate change and development of renewable energy sources and environmental protection, active practical cooperation within the framework of the Chinese-US working group on climate change.

Germany

Agreements reached at the end of Xi Jinping's visit to Germany on March 28-30, 2014 and German Chancellor Angela Merkel's visit to China July 5-8, last year, include:

• bringing bilateral cooperation to the level of comprehensive strategic partnership (the Chinese side's initiative);
• introducing the concept of a comprehensive strategic partnership between the EU and China, as well as fulfillment of the obligations on implementation of the Program for Strategic Cooperation until 2020 (the German side's initiative);
• expansion of bilateral trade (primarily due to fighting protectionism) and financial cooperation (opening in Germany of an offshore center on settlements in Yuans and of a Chinese clearing bank);
• establishment of innovative partnerships, including cooperation in the fields of industrialization, urbanization, information technology and agriculture, as well as in transport, electric, modern production technologies, energy, food security, clean water and energy efficiency;
• using information exchange on important regional and international issues, in particular regarding the situation in Ukraine, Afghanistan and Syria.

The Russian Federation

Right now, Moscow needs good relations with Beijing. Firstly, the Russian Federation believes that China will maintain neutrality in relation to the Crimea and the South-East of Ukraine. Secondly, Russia needs a backup pipeline in order to reduce dependence on new EU economic sanctions. Therefore, Gazprom, which had been producing oil in the South China Sea, neglecting China's “line of possessions”, now has completely stopped this work.

Besides, Moscow does not support Vietnam in the conflict with China over the Paracel archipelago, despite the fact that its (Vietnam's) right is confirmed by international laws. Vietnam, in its turn, has refused from Russian firearms, preferring Israel's. Analysts believe that this won't hit Russia too badly, as it is now focused on the development of relations with Beijing.

Russia's attempts to strengthen economic and political relations with China and to create a so-called “comprehensive strategic and coordinated association”, that were especially evident during Putin's visit to China in May 2014, will substantially affect the development of the situation in the Asia-Pacific Region.

Note: May 21, 2014 Putin's official visit to the PRC was over. During the visit, the Russian president had talks with Chinese President Xi Jinping, took part in the opening of the Russian-Chinese military trainings “Sea cooperation-2014” and in the Fourth Summit of the Conference on Interaction and Confidence Building Measures in Asia (CICA). Besides, in Shanghai, he met with UN Secretary-General Ban Ki-moon, the heads of Iran, Afghanistan and Mongolia. Russian analysts and economists believe one of the notable achievements of the visit was signing of not less than 50 agreements on trade-economic and humanitarian cooperation between Russia and China. Among those in the first place is, of course, the contract between Gazprom and the Chinese state corporation CNPC, providing for the supply of gas to China for 30 years.

The Kremlin's urgent need in the rapprochement with China was due to the following factors:

• the desire to unite the Eurasian and Pacific integration projects by adapting its initiatives (Customs Union/Eurasian Economic Union) to universal regional processes that will ensure in the future Russia and its partners' in the wake of Asian economic trends, and will also provide Moscow with an opportunity to secure for certain sectors of the Russian economy persistent positions in regional specialization;

Note: RF is taking active steps to build the equivalent of “the Organization for Security and Cooperation in Europe” (OSCE) — “Conference on Interaction and Confidence Building Measures in Asia” (CICA). CICA now includes 24 countries, 9 more countries and 4 international organizations cooperate with CICA as observers. Meetings of heads of states and governments occur every four years. The CICA's main objective is to give Asian States the right “to free choice and development of political, social, economic and cultural systems”. In fact, here is meant signing of an “Anti-Euro-Atlantic charter.”

 

• inability to maintain the “foreign policy autonomy” in the situation of the West's political and economic pressure due to the aggression against Ukraine, as well as the need to compensate for the expected losses from the deterioration of relations, and the projected limitation of trade and economic cooperation with the EU and the USA;
• Moscow's desire, based on new strategic agreements with China, to overcome persistent negative trends in the economy that have emerged over the last 2 years against the background of a relatively favorable external environment, thus preserving the existing in the RF politico-economic model and ensuring the development of Eastern Siberia and Far East, combining them with a dynamic economic development of Asia-Pacific countries.

It is assumed that the basis of the new Russian-Chinese relations is the following factors:

• Moscow's taking into account Beijing's interests during the implementation of Russia's foreign policy and economic initiatives in the region, including with states that are traditionally the RF's allies — Vietnam, North Korea, Mongolia, Laos, Cambodia, India, — not conceding its positions. Maintaining coordination between the countries' leaderships by clear delineation of spheres of the Russian and Chinese influence in Central and South Asia, elimination of contradictions at the bilateral level through mutual concessions, as well as within the framework of the SCO and BRICS;
• expansion of cooperation in the energy sector, both in a bilateral format (reaching agreements on Beijing's terms on importing to China 38 billion cubic meters of natural gas, accounting for a quarter of total gas consumption in China and more than 20 % of Russian gas exports), and (in the future) in the trilateral format Russia-Iran-China (meeting the PRC's growing needs in oil at the cost of deposits in Eastern Siberia and Iranian raw materials);
• formation of the Russian-Chinese alliance to supply China with modern weapons (on traditional Chinese conditions — in small batches);
• elimination of negative trends in the Russian-Chinese trade (decline in bilateral trade rate, deepening of structural imbalance, predominance of raw materials in Russian exports) through Russia's partial reorientation to China in buying process equipment, taking into account forecasted reduction, and by some indexes, — almost complete cessation of its supplies from Europe and the United States. Increase in realization of joint Russian-Chinese projects according to the principle “Russian technologies — Chinese investments”, primarily in the energy and mining sectors;
• intensification of Russian-Chinese cooperation in the sphere of nuclear energy and development of enterprises to enrich uranium in China.

At the same time, the rapprochement between Moscow and Beijing against the background of international sanctions on the Russian Federation, and forced to make concessions on issues that are of strategic interest to China, threatens with strengthening of the existing and emerging of new risks for Russia, namely:

• consolidation of Russia's status of China's raw materials appendage, acceleration of its economic and technological lagging behind the leading countries of the Asia-Pacific Region and as a result — diminishing of the authority in regional associations — the SCO, BRICS, APEC;
• China's turning the SCO into the instrument for realization of its interests in the Central Asia and not letting it succumb to Russia's interests;
• contradictions between China's interests and the Russian Federation's integration initiatives on former Soviet territories (Customs Union, EAEU, CSTO), making dubious the prospect of creation and full functioning of the Eurasian Economic Union. Strengthening of China's economic expansion in Central Asia and dominance in investment, trade and economic sectors can lead to the countries of the region preferring preferential trade regime with China, giving up integration with Russia.

China

Main trends in the overall development of China in 2014:

• adherence to the policy of further industrialization and urbanization;
• strengthening the role of planning and balancing of the major indicators to support “smart” economic growth (expected GDP growth by 7.5 %, consumer prices by 3.5 %, maintaining the balance of international payments and keeping the registered unemployment rate in cities and towns within 4.6 %).

To achieve this, the following guidelines had to be observed:

• deepening the reforms, which should be a major driving force of transformation of the society, with an emphasis on the growth of the role of market relations in the distribution of productive forces (the key influence of the state is expected to remain in macro-regulation and macro-stabilization in areas of growth, employment, monetary policy);
• an increase in the fiscal deficit and state loans in proportion to an increase in the economy and keeping the share of fiscal deficit at 2.1 % of GDP. According to Chinese economists, this will ensure compliance with the principle of consistency in financial policy;
• introduction of moderate elastic monetary policy that, along with supporting the balance between aggregate demand and offer, will ensure stability of the financial and monetary system as a whole, but at the same time will provide for greater responsibility of government agencies in coordination of micro-regulation in fiscal, monetary, industrial and investment policies;
• improving the citizen's living conditions. The role of domestic demand as the main engine of the economy was expected to grow, so special attention was devoted to increasing of incomes. In parallel, spending on education, health and the environment also were increased.

Among the basic principles of the concept of development were such as a reform of the administrative system and tax system, transition to transparent to the public system of revenues and budget management. The conception also provided for reforms of the financial system and optimization of the structure of the state sector of the economy.

Among the priorities of the program is creation of an economic belt along the “Silk Road” and “Marine Silk Road of the 21^st Century”, the existing economic corridors “Bangladesh-China-India-Myanmar” and “China-Pakistan”, including through the development of so-called “support” projects meant to ensure accelerated development of communications infrastructure and creation of free trade areas (FTA), meeting the requirements of the highest international standards.

Against this background, one of the key factors by which in the short term will be formed regional and world politics of China, will be Beijing's additional opportunities to transfer its economic model from extensive to intensive development options, as well as the use for its global rise of general regional trends and principles of cooperation.

China, presiding in 2014 in the APEC, had initiated in the region a number of profitable for the PRC projects focused on the development of transport and communication infrastructure, creation of the Asian Infrastructure Investment Bank, development of information, energy, food cooperatives, organizing conditions for the use of the Yuan as a reserve currency of the future.

All this makes it possible to Beijing to use its growing influence in its own interests, concerning the reforming of international institutions that, eventually, can change the existing world order. This process will increase the influence of oriented to China and Russia political and economic entities (primarily BRICS, SCO), due to the fact that their members' priorities will be common interests. Consequently, the presidency in the APEC, as well as membership in the BRICS and the SCO can be used by Beijing to undermine in the region the positions of the USA, enjoying the status of the main integrator and security guarantor.

At the same time, it is assumed that a collective platform of BRICS and the SCO will not be able to unite its members in case of a geopolitical conflict. It is not excluded that introduction of new tough financial and economic sanctions against the Russian Federation, abilities of banking mechanisms of these associations will be limited, except for the triangle Russia-India-China, in which trilateral integration can be enhanced. However, China and India's reaction to the alleged offers of the Russian Federation (primarily in the military and energy sectors) will be conditioned by pragmatic calculations based on the concept of maximum benefits from the tension in US-Russian relations. In particular, the PRC believes that the Kremlin against the background of predictable increasing of international isolation will demand from China a greater economic support. And China will use it to achieve its foreign policy goals, when Russia will continue to take it as a potential enemy due to the following insurmountable contradictions:

— unresolved territorial claims on the part of the PRC to Russia;

— competition between the Russian Federation and China in matters of political dominance, territorial and economic resources, as well as scientific and technical progress.

Thus, in the medium term in the Asia-Pacific Region will be observed a dynamic accumulation of political problems due to increased competition between countries against the background of the revival of nationalism, territorial claims and building up of arms races, which will increase the rhetoric in the dialogue between regional leaders.

In Eurasia, China and Russia's revenge-seeking has not broken the existing geopolitical order yet. At the same time, due to a change in the political dynamics, it has created preconditions for abolition of the status quo in the region, established by Western countries after World War II.

Despite this, none of the regional representatives is interested in a radical change of its place in the existing balance of power, as well as in strengthening of confrontation between the key players. Thus, Moscow believes that the United States in the Asia-Pacific Region is not a potential threat, but the main source of support for the balance of power. At the same time, the Kremlin, supporting militants in eastern Ukraine, seeks to demonstrate to Washington the vulnerability of the main principles of the US national security strategy, forcing it to go, in order to optimize it, for additional financial costs, which will lead, accordingly, to new global challenges and threats.

Brussels believes that it is necessary to introduce the concept of complex strategic and innovative partnership with China, including cooperation in the spheres of industrialization, urbanization, information technologies, transportation, energy, food security, clean water resources and energy efficiency.

China's economic and political weight will increase gradually. This process will be accompanied by a permanent reorientation of satellite countries of the region from traditional donor nations (USA, EU, and Japan) to China. The attractiveness of such a trend would be explained by the fact that Beijing has refrained from making political conditions in the process of expanding economic cooperation, an access to new funding will be provided in exchange for lucrative contracts and concessions for Chinese investors. At this, the over-dependence of developing economies on one donor will be adding to instability in the region.

The rapprochement between China and Russia will provide the PRC with significant positive benefits in the competition for global leadership. In fact, it will be assigned to China in Asia Pacific with Russian assistance (in exchange for China's abandonment of the expansion to the north), and in the future will activate a global China-USA confrontation, as well as due to the polarization of interests, it will determine a correction of China's policy with neighboring countries.

Formation of the Russian-Chinese alliance will have limited positive impact on the political and economic situation in Russia in the short term and lead to negative consequences in the future.

At the same time, the shift of emphasis in China's foreign policy as a result of the Russian Federation's aggression against Ukraine, will force Beijing to take Moscow's initiatives with caution, as the EU and USA will remain strategic markets and sources of technology to China. Besides, it is possible that the rapprochement between Russia and China, after the sides' reaching their tactical goals, may in the medium term end in another cooling of relations.

At this, the analysis of the available information shows that the official Beijing will not be unduly transforming its own position because of the Russian-Ukrainian conflict, either under the influence of the West or of Russia.