he recent announcement by the Russians that they have made an important strategic deal with China to sell about US$400 billion worth of Russian gas to China over a thirty-year period is being touted as some form of clever international diplomacy by the Russians to compensate for their impending losses in Europe as a result of the Russian attack on the Ukraine and its annexation of the Crimea.� They are scheduled to sell just over 36.8 billion cubic meters (1.3 trillion cubic feet) of this gas to China through a pipeline in this deal.
This is not a new deal. This offer has been in negotiation between Russia and China for over ten years. It was a pet project of Mikhail Khordokovsky when he still ran Yukos. There have been many failed steps since then. There are some very important logistical and business aspects of this deal whose challenges far outweigh the putative political triumphalism:
- No price has been agreed for the sale of the gas between the two nor is there a formula for adjusting the price during the thirty years,
- It covers the sale of currently non-existing gas volumes from extraction points which have yet to be identified and shown to be of commercial quality.
- It is to be delivered through a pipeline which has yet to be designed and built.
- It is to be financed on the back of Chinese credit as the Russian credit status hovers around junk bond status; its currency continues to depreciate and capital outflows from the country gather pace.
- It belies the fact that Russia and China are competitors for influence in Asia, especially Central Asia. The Russian creation of a new 'Eurasian Union' joining Russia Belarus, Kazakhstan and aiming for its extension to Armenia, Kyrgyzstan, Tajikistan, and Uzbekistan is in direct competition with the 'New Silk Road Economic Belt' announced by Xi Jinping on his trip to Central Asia in September 2013. Xi's plan is designed to expand China's ties with these same Central Asian states.
- Russia's tilt towards Asia has historically concentrated on maintaining its good relations with both Vietnam and South Korea. Its relations with Vietnam are long-standing and include the signing of comprehensive economic, nuclear and military agreements between Russia and Vietnam, including joint oil exploration in the South China Sea. Indeed, Russia has just started deliveries to Vietnam of six 'Varshavyanka'diesel submarines to Hanoi. Now Vietnam can conduct naval operations in an area where it is in a critical territorial dispute with China and the Chinese Navy over oil exploration. Putin has also worked hard on creating a partnership with South Korea to establish a transit corridor for exporting oil, gas, and electricity to Seoul via North Korea; a policy opposed by China.
- While the two nations have agreed to expand the levels of trade between the two nations, including building the first railway bridge over their joint border, and starting the manufacture of Chinese cars in Russia; this expansion of trade is heavily weighted on the supply of raw materials to China; and the sale of manufactured goods to Russia. This will not reduce the Russian exposure to resource export dependence and the concomitant risk of rising prices for manufactured goods.
These logistical and economic impediments are not the only problems. There are several very serious security problems which affects this co-operation. There has been an intense competition between the two nations in their border regions for decades; a competition which led to military confrontation between the two along the Ussuri River. In May 1962 60,000 ethnic Uighurs (the same people who are today blowing up Chinese cities in the West and killing Han Chinese), crossed from China;s Xinjiang Province into the Soviet Union where they received assistance and materiel for their separatist aims. In an effort to restore harmony the Chinese and the Soviets started talks to regularise the conflict.
In these talks it became apparent that there were long-standing Chinese grievances over the stripping and annexing of Chinese land by the Russian and Soviet states since the late 1890s from the weak Qing Dynasty. This included the land in the Pamir Mountains and the territory of Tajikistan. In addition the Treaty of Beijing in 1900 had stripped away Outer Mongolia from China and drawn the riverine boundaries of the Argun, the Amur and the Ussuri Rivers so that the Chinese only controlled their own banks of these rivers. The Soviets controlled the water (not from the midlines of the river as usual) but the whole river and the islands in them.
On the Eastern Front, in March 1969, the Chinese PLA suddenly attacked the Soviet border guards on Zenbao Island, killing 59 soldiers. After about two weeks the Soviet troops forced the Chinese off the island. In August 1969 there were further incidents; this time in the West, in Xinjiang. There, after a few scuffles, the Soviets crossed the border and killed around 30 Chinese soldiers in Tieleketi. The Soviet presence on the Chinese border was impressive, with 25 divisions, 1,200 aeroplanes, and 120 medium-range missiles. Not only were the Chinese concerned about the Soviets backing Uighur dissidents, they were worried about a Soviet attack on nearby Lop Nur, the site of China;s nuclear test facilities. Tensions were high and there was a danger of nuclear escalation. Fortunately this was avoided. There continued to be further incidents during the Cultural Revolution.
Negotiations were resumed in 1991 and a partial treaty signed on May 29, 1994. This was completed in November 1997 at a summit meeting in Beijing where Yeltsin and Jiang Zemin agreed a treaty establishing the border between the two countries. Finally, in October 2004 the two nations signed a Complementary Agreement returning some territory to China. This was confirmed at a meeting of the two nations 2008.
This current period of peace does not mean that much of the centuries-long hostility between the Russians and the Chinese have disappeared. Russia has a very serious problem with China. There are too few Russians in the regions of Khabarovsk and Primorsky Krai to match the Chinese. Russia is being depopulated at a prodigious rate with many of those who lived in Siberia and the Russian East (Dalnevostok) moving West to the cities across the Urals. When the Cold War ended, the Soviet Union had a total population of nearly 290 million; two decades later, Russia's population is about 140 million and falling. There are not enough Russians to conduct the business that will need to be done on a project as vast as the extraction of oil, the building of a pipeline and the establishment of roads and infrastructure in that region. Even the Russians admit that this work will be performed by Chinese labourers.
When I was working in the Russian Far East in the early 1990s the Port of Vanino was building a bunkering facility for the new company Trans-Bunker, bringing oil from near Khabarovsk to a storage facility in the port. There were tenders for the construction but only Chinese companies were able to quote. They came over and did the building. They stayed on in Russia and have been working there since. There are thousands of Chinese workers and merchants in Siberia and the Dalnevostok. When I went further south to the ports on the Russian, Chinese and North Korean border (Zarubina and Posyet) we had to hire Chinese labour. We travelled to Harbin in nearby China and made the arrangements. Russian companies did not have the manpower, the working capital or the inclination to do infrastructural work. It has grown no better with the continuing depopulation of the region. The dependence on Chinese manpower will have an important effect on Russia;s purported tilt towards China.
The politicians may think it makes sense to shift their focus to China but the Russian military has no such compulsions. I spent some time at the Mongochkta (the base from which they shot down the Korean passenger liner) air base when arranging some shipments and I spoke at length with the leaders there. They were not worried about an attack from the US; they were focussed on China. This was equally true at the naval bases in Sovetskaya Gavan and Bolshoi Kamen not far away. It is difficult to believe that the Russians of Siberia and the Far East are worried more about NATO (6,000 miles away) than they worry about the Chinese with billions of people a quarter of a mile away across the Amur and the Ussuri Rivers.
So perhaps this economic deal of the Russians in turning their focus on to Asia and China is a great deal less than it seems. According to the Chinese plan for a New Silk Road the Russians will play only a minor part. When the Chinese finished hosting Putin and his advisors, China was very busy with its own plans.
In the lead up to the Shanghai Summit of the Conference on Interaction and Confidence Building Measures in Asia (CICA) the first central Asian leader to signal the strategic depth of central Asia;s ties with China was Turkmenistan;s President, Kurbanguly Berdymukhamedov. One week before Berdymukhamedov;s mid-May visit to China, China opened a new $600 million processing plant at Bagtyarlyk gas field, the location of a 4,375 mile China-bound pipeline. Turkmenistan;s gas exports to China have increased in recent years, with officials aiming to reach 40 billion cubic meters by 2016 thanks to China;s financial backing of Bagtyarlyk. Upon arriving in China, Mr. Berdymukhamedov signed a gamut of deals with Beijing, formalizing Turkmenistan;s ascension as the last central Asian nation to sign onto a 'strategic partnership' with Beijing . Next to have a strategic tete-a-tete with President Xi was Kazakhstan's President Nursultan Nazarbayev. Nazarbayev signed a series of energy agreements; expressing Kazakhstan's enthusiasm for providing energy support to China's economic development, welcoming any resulting Chinese investment in his country. Memorandums of understanding were signed between China's ExIm Bank, China National Petroleum Corporation (CNPC), and state-owned investment company CITIC Group for development loans and pipeline construction. China even reiterated an interest in helping Kazakhstan acquire warships.
A day before China signed nearly fifty agreements with Russian President Vladimir Putin, Xi met with Azerbaijan's President Llham Aliyev to ink deals on energy, infrastructure, technology and banking Azerbaijan, like the other central Asian nations, is a key transit country linking Asia to Europe. Azerbaijan is currently building the largest port on the Caspian Sea, the International Trade Seaport, in Alat near Baku. Once complete, this port will increase the volume of cargo ultimately to 20 million tons per year, no small number for Chinese eying markets in Europe and elsewhere.[i]
This is not a development in which Russia has a major controlling option. This new partnership is not a partnership of equals and no amount of pretending by the Russians will make it so.
It is not a flawed partnership but a partnership with a senior and a junior partner - not a position which enhances or guarantees. Russia's security or prosperity
[1] "China Takes Steps Towards Realizing Silk Road Ambitions", Laura Dickey, China Brief 4 June 2014
