Nov 11th 2014

Why the China/Russia Rapprochement Won't Last

by Daniel Wagner

Daniel Wagner is CEO of Country Risk Solutions, a Connecticut-based cross-border risk advisory firm and author of the book Managing Country Risk. CRS provides a range of services related to the management of cross-border risk. He is also Senior Advisor with Gnarus Advisors.

Being a big believer in the lessons taught by history, I'm inclined to think that the current 'love fest' between China and Russia will probably have a limited shelf life. Natural resource acquisition and the gyrating geopolitical chess board are the primary reasons why both countries are enjoying a bilateral rapprochement. Russia is driven by a desire to find alternative buyers for its oil and natural gas, and both countries are trying to gain a competitive foothold to gain increasing influence in the emerging world order, at the expense of the U.S. But can such an alignment stand the test of time? History suggests not.

Between 1917 and the 1960s there were numerous instances of either severe tension or outright conflict between the two powers. These include Soviet troops establishing a pro-Soviet Mongolia client state in the early 1920s, the Soviet alliance with/support for the Kuomintang, the Sino/Soviet conflict of 1929, the Xinjiang War of 1937, the Ili Rebellion and Soviet support for Uighurs, the Pei-Ta-Shan Incident, the Sino/Soviet Split in the 1960s, and the 1969 Border Incident.

Serious negotiations to address a range of lingering border issues between the two countries did not begin in earnest until after the dissolution of the Soviet Union, and continued until 2008, with the signing of the Sino-Russian Border Line Agreement. So the past 100 years have seen more times of conflict than genuine peace and collaboration between the two powers. The question becomes whether President Putin's long-term interest in re-establishing the 'glory' and geopolitical influence of the former Soviet Union will ultimately clash with China's re-establishment as the world's pre-eminent economic and political power.

Clearly, the two bilateral natural gas agreements signed between Vladimir Putin and Xi Jinping this year create a foundation upon which to build long-term economic cooperation, but the same was said of Russia's long-term gas agreements with Europe. We know how that has ended up. Do the natural gas agreements create a sustainable foundation upon which to build a permanent political and economic alliance? Not by themselves.

According to China Daily, Russia was only China's 10th largest trading partner in 2013. Clearly that will change once the gas starts flowing to China under the terms of the agreements. According to Nomura, China will procure up to 17 percent of its gas from Russia by 2020. That will do wonders for Russia's exports to China, but according to the CIA World Fact Book, in 2012, Russia wasn't even in the top 30 as a recipient of China's exports. The bilateral economic relationship is very unbalanced, unlike Russia's trade relationship with Europe (with the EU being Russia's largest trading partner), which implies room for conflict going forward.

Politically, China and Russia want some similar things, but with a vastly different approach to getting what they want. China throws its weight around when it wants to, but generally not through aggressive military action. Rather, China tends to take things right up to the line (vis-à-vis border disputes or treaty negotiations, for example) in order to get its point across. Russia has demonstrated an ongoing propensity to breach geographical borders and use military force to achieve its objectives. While China tends to sit back and let warring parties slug it out, Russia tends to want to jump into the fray. There is room for conflict between them on this basis.

Both powers seek to enhance their ability to achieve their economic and military objectives in overlapping parts of the world, such as Central Asia, the Middle East, Southeast Asia and Japan. They are not natural political allies. A political alliance would only really make sense if they both sought to counter U.S. influence at the same time, and in a similar way -- and they don't. Given China's economic, political and military rise, it has little real incentive to partner with Russia politically or militarily. The closest political grouping the two countries have in common -- the Shanghai Cooperation Organization -- has never really amounted to much.

Russia began selling fewer weapons to China in the 1990s, based on concern about China's rise, Chinese replication of some of its most sophisticated weapons system, and its ability to interfere in Russia's spheres of influence. Those concern have only grown with time. China's missile program is arguably as good as Russia's and probably superior in terms of unmanned aerial vehicles. In time, the Russians may be purchasing weapons from the China, rather than the other way around.

So the gas agreements are about expediency and long-term natural resource security, not about an emerging anti-U.S. mega-alliance, or a plot to take over the world. We've seen this film before -- it is all about political expediency and economic opportunism. The net beneficiaries will be Russia's balance of payments and China's ability to satisfy is long-term energy needs. If relations were to become warm again between Europe and Russia, Mr. Putin may regret having limited his ability to move on the chess board by committing to the Chinese agreements. For the time being, the bear and dragon are all smiles. Let's see how long it lasts.




Daniel Wagner is CEO of Country Risk Solutions and author of "Managing Country Risk". For Country Risk Solutions, please click here.

You can follow Daniel Wagner on Twitter: www.twitter.com/countryriskmgmt




 


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