Our Friend, The Bear

China’s forthcoming president, Mr Xi Jinping, has announced his first official visit will be in Moscow, sometime before attending the BRICS summit in South Africa (26-27 March). While the USA keeps ‘pivoting to Asia’, China is increasingly looking towards Eurasia and Russia.
Will the bear become the dragon’s best friend? Are Beijing and Moscow getting closer and closer? In many respects, the answer is yes. In the past, Russia/USSR and China often had clashes: during the Cold War, the 1960s witnessed the Sino-Soviet split, followed by the famous Nixon visit to Beijing in 1972. After the Soviet Union’s end, however, the relations between the two Eurasian powers have clearly and dramatically improved. What happened?
First, there are sound economic reasons. And the most important have to do with energy. Gazprom intends to ‘pivot to East Asia’, where gas prices are much higher than in Europe, and profit opportunities, much bigger. Last November Mr Putin gave the green light to building a 3,200 km gas pipeline connecting gas fields in Yakutia with Vladivostok, with the aim of bringing energy closer to East Asia, and China in particular. The oil giant, Rosneft, intends to pump another 9 million tons of oil to China, and contribute to a joint Russia-China refinery in Tianjin. China needs Russia’s large energy supplies, while Moscow aims to benefit from China’s industrial capacity and goods. Big deals between the two countries cannot then come as a surprise.
Apart from energy, the bear and the dragon co-operate in many other sectors; from agriculture to tourism, and from finance to mining. Interestingly, China’s rating agency, Dagong Global, in October 2012 joined forces with Russia’s RusRating and created an international player with headquarters in Hong Kong and the potential to challenge the supremacy of the three Atlantic sisters, Moody’s, Fitch, and S&P’s. Both China and Russia need a financial arm alternative to the USA and supported by other emerging countries; is it just chance that Xi will visit Putin soon before the BRICS summit? Would India and maybe Brazil be ready to join and call for a reform of the global financial system?
Certainly, right now there are countries towards which China and Russia are attempting to find a common position. They are the Central Asian countries, the stans, heartland of Eurasia. All of them are semi-authoritarian regimes and some, Kazakhstan in particular, are rich of minerals and energy sources. Furthermore, such a huge landmass lends itself to massive investment in transport and energy infrastructure, two sectors in which China and Russia are leaders. Pipelines link Kazakhstan’s oil fields to both Russia and China, and the two countries are the main trade partners of most Central Asian states. China’s Metallurgic Group has made the biggest investment in Afghanistan’s history, in the Aynak copper mine, while China National Petroleum Corporation has started the exploitation of oil and natural gas in Afghanistan’s Sari Pul, the first oil field in that country’s history.
Investing in countries like Afghanistan obviously calls for great attention to strategic aspects. Will extremist groups surge again, and maybe spill over into neighbouring States? Now the USA and its Western allies are withdrawing from the region, and here as well as in the Pacific, China needs security. Who can be a better security provider – and ally – than Russia? Russia and China, together with Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan, are members of the SCO – Shanghai Cooperation Organisation. The SCO was founded in 2001 with the aim of co-ordinating security in Eurasia, and has sometimes been seen as an ‘alternative’ or even ‘opponent’ to the NATO. This in fact is not its founders’ intention: the SCO aims to preserve stability in a strategically key world region, and at the same time lay the ground for a more balanced and just international order, in which the peoples of Eurasia can find their place without being overwhelmed by the massive military might of the USA. India and Iran are SCO observers, and even Turkey has joined as a ‘Dialogue Partner’; Prime Minister Erdoğan has recently observed that Turkey might drop her EU membership candidacy and look instead for full membership into the SCO. From the Chinese perspective, the SCO represents an excellent chance to co-ordinate with Eurasian partners on key issues such as energy, security, fight on terror, and co-operate with Russia as a response to USA interference in Pacific affairs.
Is China thus turning her back to the great Pacific scenario? Not at all. China needs to buy some time also to build a strong financial infrastructure and peacefully compete with the USA in monetary and financial terms, too. The idea of an Asian ‘super-bourse’, a competitor to Wall Street, still looms on the horizon. In 2011, the Australian government blocked Singapore Stock Exchange bid for Sydney’s. On 1 January 2013, Tokyo Stock Exchange, also because of its relative decline, merged with Osaka’s to form Japan Exchange Group. The exchanges of the ASEAN region are united in the ASEAN Exchanges. How will China move?
Shanghai Stock Exchange is gradually opening to foreign investors, while Hong Kong is already trading in Yuan. The two large markets are complementary, and their combination could lead to the rise of the largest stock exchange in the region – and potentially in the world. In September 2012, Shanghai, Hong Kong, and Shenzhen Stock Exchange started developing joint investment products and services. Shanghai (and smaller Shenzhen) needs more internationalisation, while Hong Kong already now is a crucial gateway to the world. The trade of Yuan-denominated bonds has recently started in Taiwan, and the role of China’s currency is becoming increasingly important also in distant regions such as the Gulf, where large banks (Dubai’s NBD) have started offering Yuan accounts. Once again the Russian Bear might have a key role: Russia and China already use Yuan and Rubles in bilateral trade, and the Bear can throw muscles and energy into a new Eurasian financial architecture. The strategic and economic importance of Russia-China co-operation (for the whole of Eurasia) was envisaged by Russian premier and expert, Jevgenij Primakov, twenty years ago: now it is time to reap its benefits. Much will be discussed in Mr Xi’s visit to Moscow, and soon afterwards at the BRICS summit. In an age of lasting economic crisis, the world needs creative and original solutions.