Country Report: Russia (January 2015)

Russian publications have had to react to an unexpectedly difficult environment at the end of 2014 and the beginning of 2015. Counting on increasing polarization in the Asia-Pacific region, they observed Xi Jinping soften his opposition to the United States in meeting with Barack Obama in November. Intending to separate troubles in Europe from aspirations in Asia, Putin found the spillover so severe that he left Australia early during the G20 meetings. What appeared to be a new level of Sino-Russian agreement on energy looked more doubtful as the fragile state of the deal became clearer and then global energy ironically fell acutely into a “bear market.” The accompanying sharp slide in the ruble quickly made publications outdated if they maintained the optimistic tone of just weeks earlier. We report below first on articles from November, which largely convey a false sense of hope, before turning to some doubtful pieces, some of which were already appearing before the crisis in the Russian economy became readily apparent. Despite the dire news in December and January, there continued to be attempts to find some silver lining for Russia.

Vladimir Skosyrev in Nezavisimaia Gazeta on November 10 summarized the results of the APEC summit, contrasting the steady course of the Putin-Xi relationship with the impact of the meetings of other leaders, although acknowledging the Obama-Xi summit’s effect on softening differences on economic and political problems. Until the last minute it was not known if Putin and Obama or Xi and Abe would even meet or whether a compromise would be reached to stop the formation of two political and economic blocs in the region. China’s proposal for an inclusive FTAAP and the US proposal for TPP, which Chinese experts have seen as an “economic NATO,” loomed large in the background, as Xi was making clear that he would not yield to American pressure and also set forth a Silk Road Fund to establish transportation infrastructure and positioned China at the center of a Maritime Silk Road. Putin stressed the importance of Russia and China working more closely together in a changing international environment. The article accentuated the need for a solid economic base to these bilateral relations, welcoming the new gas agreement for a western route with credits to be supplied to Russia and holding out hope that more Russian gas would eventually go to Asia than to Europe. The impression was given that as Russia reorients to the East, China’s deepening of integration processes in the Asia-Pacific region against the resistance of the United States works in Russia’s favor, even if China is the center. The article also discusses Chinese assistance with a high-speed railway between Moscow and Kazan as very important with prospects good for a similarly fast connection to Beijing, including hopes for Chinese capital to be made available for the modernization of the Trans-Siberian railway. On the eve of the collapse of energy prices and the Russian economy, such grandiose thinking was seen as a panacea to Russia’s troubles in the West, but with warnings that Russia should not become a weak supplicant ready to make any concessions that China was seeking or become dependent only on China as a partner—a seemingly unlike result.

On November 17, Iurii Paniev wrote in Nezavisimaia Gazeta that at the Vladivostok APEC summit in 2012 Putin had already declared that Russia would turn to the East and over 5-10 years make the Asia-Pacific region its main economic partner. This shift is not strange, given Russia’s vast Asian territory, the Western sanctions, and the extraordinary opportunities in East Asia, Paniev added, but he claims that the development of Siberia and the Russian Far East also offers a unique chance to countries in the region. This is linked to claims that tax breaks and simplified administrative procedures now beckon enterprises to export manufactured goods to the Asia-Pacific region. Russia also plans to export coal and gas in large quantities, investing heavily in transportation routes as it modernizes the BAM and Trans-Siberian railways to serve as the main trans-continental arteries, while also opening a new window to Europe across the Arctic for four months per year. It expects to strengthen ties with Japan and India, where the need for energy is high. Paniev further describes Russia as in an ideal position as a third force to balance in the Asia-Pacific region the two strongest regional players, whose interests are ever more contradictory. The impression offered is that Southeast Asian states are eager for Russia to play that role and that here and in Northeast Asia no danger of overdependence on China exists. Such idealism ignores many realities to posit Russia as a major player. It is typical of a genre of countering troubles with the West with confidence about the East.

In Nezavisimaia Gazeta of November 28, Danila Bochkarev wrote that cooperation with China is a strategic necessity for Russia. News that Gazprom had not received an advance from China or a legally binding agreement for the already announced construction of a gas pipeline had raised doubts in Russia, but Bochkarev suggested that this was just the way China, as a “master of negotiations” operates in order to cut the best possible deal. In light of the fact that the global geo-economic balance has shifted in favor of the “Asian dragon,” whose rise the author extrapolates as inexorably taking world leadership—even in energy—but is in urgent need of natural resources and will not lose the chance to join with Russia. Indeed, Bochkarev foresees Russia emerging from these talks not only as a resource supplier but also able to establish new industrial and technological clusters in the Russian Far East and to entrench its companies in the Chinese market, adding that it would be strange if the world’s biggest exporter of energy resources and the country with the largest demand for them did not forge a strategic partnership in this sphere. Those who see this relationship as a choice for Russia between Eastern and Western civilization miss this point, the author argues, adding that however true it may be that sending gas by existing pipelines to Europe is much more profitable than the western route to China, the oversupplies in the EU market and the overproduction in Russia makes Asia the forward-looking choice. Some details are added about the new deal. Losing ground within Russia to Novatek and Rosneft’, Gazprom compensates through exports. Given talk in the EU of diversifying away from “critical dependency” and “unreliable” suppliers as Russia, it is not surprising that Russians have the impression their gas is not welcome there—a view exacerbated with the Ukraine crisis. Such was the thinking on the eve of the collapse of energy prices, downplaying the danger of one-sided dependence on China and also much overestimating the growth in Chinese demand and the prospects of a finalized deal.

Sergei Karaganov in Rossiia v Global’noi Politike on December 17 reviewed the past year, arguing that the change in Russia’s course was almost unavoidable and that it is risky but potentially productive for Russia and the world. Given the changes in the relationship with the West, Russia’s elite must turn to domestic rejuvenation or the country will fall from the position of the third world power to a more peripheral role. This confrontation will be deep and long, less ideological or a direct military confrontation than in the Cold War, although he does not rule out a direct clash. The main cause is the refusal of the West to recognize Russia’s position in European and world politics, which Russia considers natural, while systematically limiting the freedom, sphere of influence, and markets of Russia at the same time as it keeps on extending its own interests through NATO and the EU. Despite promises, states such as Poland and the Baltic countries grew increasingly anti-Russia. Karaganov refers to NATO as an expansionary alliance, as seen in Yugoslavia, Iraq, and Libya. The main cause of the crisis in Ukraine was a further expansionist agenda to incorporate Ukraine into the EU and even NATO. Russia’s crisis, he adds, is also a sign of inaction on reform and modernization, when Russia has had the resources to proceed. Now, he estimates, it will take at least 3-4 years as Russia changes course, while turning to Asia. The great powers have adopted a course to destabilize some regions, dragging the world into the geopolitics of past centuries. The security vacuum in East Asia and Southeast Asia is widening. The tendency is growing to establish half-closed economic blocs against the trend of economic globalization. Presenting Russia as the defender of the liberal world order, Karaganov raises doubts about the unfavorable circumstances it faces as it shifts to Asia, while indicating that the problems it faces were predictable—even unavoidable—given what sounds like “imperialist” actions by the US-led West and Russia’s inescapable need to defend its national interests.

An article by Sergei Trush in the November issue of Mezhdunarodnaia Zhizn’on TPP noted conflicting opinions on what type of organization this is, focusing on the wider obligations beyond just a trade bloc sought by its backers, mainly the United States, i.e., the “platinum standard,” covering production, taxation, rules of competition for both the private and state sectors, transparency of investment, intellectual property rights, and labor law. The fact that TPP has the potential to cause principal shifts in the economic model makes it more of a tight economic union rather than simply a trade bloc. The United States is motivated to achieve “competitive liberalization”—norms of openness and rules of the game in line with the “Washington consensus,” giving it a competitive advantage. Members would entrench favorable conditions for all spheres of economic struggle—markets, investment flows, technology, access to energy and raw materials, the flow of migrants, and intellectual property. In this way, they would be optimally positioned for the international division of labor. The emergence of TPP plans followed China’s efforts from the 2000s to use ASEAN as a base for economic integration that would isolate and gradually exclude the United States from East Asia. Given George W. Bush’s focus elsewhere, he had to lower the US profile in the Asia-Pacific region in economic integration as well as in political and military relations, making it easier for initiatives to go forward weakening the US presence in formulas for integration. Responding to negative indicators, such as losing ground in competition with China, increasing debt owed to China, tightening Sino-Russian ties, and the strengthening of China’s position in territorial conflicts, the United States later turned to TPP to strengthen its competitive advantages in East Asian markets and to overcome pressures to squeeze it out of the region. The result is an American-centric plan, strengthening the position of US industrial groups in many sectors and obliging states to accept conditions aimed against the economic and military activities of China in the region. Having indicated why this plan would be antithetical to China’s interests, along lines very familiar to Russian readers, Trush abruptly changes course when he reviews the Chinese minority view that China must consider joining TPP to spur reform and to avoid marginalization.

This change of tone in the second part of his article reflects Trush’s awareness that the high hopes invested in Sino-Russian collaboration in opposition to the US-led international community were overblown and contradicted by the Xi-Obama talks.

Trush finds Chinese opinion on TPP split on how to respond with the dominant view negative, excluding participation. Especially large state companies unprepared for competition abroad would find entry painful. China’s support for RCEP reflects this, and Trush reports that it is scheduled to take effect in 2015, based on the social traditions of the Asian economies and allowing time for states to adapt. Another Chinese FTA plan is with Japan and Korea. A less influential group in China is not so categorically opposed to joining TPP, accepting that China has long supported trade liberalization and is in need of further reform after recent lethargy and resistance from various interest groups. This group warns of the risk of marginalization in the region. Recent reports support a pro-liberal market logic of development. Moreover, Xi Jinping’s search for a new model of relations with Obama in conditions of deeper economic problems in China suggests readiness for more interdependence with the world economy, working with the United States as an economic locomotive in the region. The article concludes that RCEP may later lead to a flexible approach to TPP.

On December 16 in Svobodnaia Pressa, an interview with a Chinese academic expert focused on whether adopting a Chinese model could solve Russia’s economic crisis. It cast doubt on measures Russia was taking in the face of the rapidly sliding ruble and supported following Chinese examples—perestroika along Chinese lines—, even to the point of estimating that it would take only one year to be back to normal. Yet, it argued that there was no sign of interest in doing so among Duma deputies and officials. The explanation offered is that they are waiting for sanctions to be lifted by the West, but the Chinese source warned that these are likely to remain for a long time. Faulting the USSR for missing the chance to learn from Chinese reforms, as if they were revisionist or departed from Marxism-Leninism, and then in the 1990s avoiding the Chinese approach as directed planning rather than the way to a market economy, the interview attributes Russia’s problems in contrast to China’s success to Russia’s failure to heed China’s example—a situation that is being repeated now. Readers may differ in whether they see this article as an example of arrogance by Chinese, as regret that Russia has too long followed the West’s lead, or as just a means of using a Chinese source to rebuke policymaking for measures bound to fail.

The backlash against overreliance on China was mounting even before the troubles at year’s end. In the November 7 Nezavisimaia Gazeta Aleksandr Khramchikhin had warned that Beijing is a partner, not a friend, and should not have a predominant role in Moscow’s foreign policy, pouring cold water on what many were saying. He reminded readers of the “spectacle” of repeated claims of unprecedentedly close Sino-Russian relations, arguing that they only have a normal trading relationship, although adding that the vast majority of deals are more favorable to China than to Russia, even to the point of outright theft. Khramchikhin warns that relations with China should not be viewed through the lens of relations with the West. China must be seen in its own light. As evidence that China and Russia are not allies and never will be, he cites China’s refusal in 2008 to recognize the independence of Abkhazia and South Ossetia and its weak support for Russia against Georgia and remarks that Beijing is much more aggressive than Washington in intruding into the post-Soviet space to the point that Russia is exerting all of its energy to block China in the SCO. This organization did not become an “anti-NATO” as Moscow sought, he charges, but an instrument for China’s economic seizure of Central Asia. Even as China’s leaders express support for Russia’s integration efforts, such as the EEU, lower officials and experts openly declare that they are against China’s interests. The author warns that China does not (contrary to the opinion of many in Russia) actually support Russia on Ukraine, from which it has already extracted (at a lower price than Russia would have required) all of the Soviet-era military technology. The fact that China’s plans for using a port in west Crimea has been put in doubt has delivered a big setback to its “New Silk Road” project (which has an openly anti-Russian character by killing the Trans-Siberian and Northern Route transportation networks through a Eurasian route across Central Asia using the European wide gauge) and the delivery of grain through massive agricultural cooperation with Ukraine. Reviving this construction project would require China officially to recognize Crimea as part of Russia. As trade and cooperation continue between Ukraine and China, Chinese do not object when the Ukrainian side contrasts this relationship to “slave-like attachment” to Russia or continue to refer to the 45 million people of Ukraine, when the total is down to 43 million after the loss of Crimea. The article even cites some Russian specialists who warn that only China has the money to save Ukraine, taking over its economy in the process. Such alarmist comments were a minority, but show a deepening backlash.

The warnings extend to reminding readers of China’s territorial pretentions toward all of its neighbors, the largest of which are to Russia and have not disappeared even after the 2004 agreement. Warning that China is preparing for nuclear war and that it is wrong to think either that China is drawing close to Russia or that Russia’s ties to the West bear on China’s relations with it. Rather the West demonizes Russia much more than China, and China has no intention of quarreling with the West, especially with the EU, whose integration it fully welcomes, unlike Russia. While Chinese leaders are meeting with Russian ones to the tune of high-sounding words, practical results are close to zero, in contrast to its agreements reached elsewhere. This is not an appeal to turn back to the West, but one to be wary of trusting China.

In the November issue of Mezhdunarodnaia Zhizn’, Elena Arkad’evna Bragina looked back at the results of India’s 2014 parliamentary elections. Detailing problems that had led the electorate to register its dissatisfaction—some with obvious similarity to those in Russia, such as the bureaucracy’s pressure on business, leading to the outflow of capital, and high levels of corruption—, the author focused on why the Congress Party suffered a massive loss in May and what was Modi’s path to the top as the architect of the “Gujarat miracle,” favoring entrepreneurship and the voice for “good governance” and economic reform toward a “New India.” Once in office he increased the defense budget to USD 37.5 billion and sought to increase the place of foreign capital in the defense sector from about a quarter to one half. His administration seeks to export weapons and to increase India’s production of them. He is keen on increasing FDI, where Russia too is lagging. The article notes that once elected Modi made foreign policy a priority. It describes him as cautious toward China, when Xi Jinping visited in September, given that 56 percent of Indian respondents regard it as India’s main threat. More space is devoted to Modi’s visit to Japan with a group of businessmen a few weeks earlier after an upsurge in Japanese capital flowing into infrastructure construction, as both sides strive to establish a counterweight to China in South and Southeast Asia, e.g. with India’s “Look East” policy also seeking to strengthen ties with ASEAN. The September 30 visit by Modi to Obama is described as overcoming recent issues in bilateral ties and stabilizing relations with an emphasis on trade and acquisition of technology. No connection is drawn between the meetings with Abe and Obama, nor is there any effort directly to refute claims in Russia that relations with India will enable it to achieve multipolarity not so dependent on China or will contribute to BRICS cohesion in opposition to the West. Its message is clear enough.

A major theme of the article is the future of Russo-Indian relations in light of their traditional friendly relations. Putin and Modi met in July at the BRICS summit, where Modi declared that his first visit after becoming premier was to the aircraft carrier Vitkramadit’ia, provided by Russia. Both leaders expressed confidence on further expansion of cooperation. Objective conditions are favorable, readers are told. There are no border conflicts, long-term friendly ties, regular mutual visits by leaders, and sustained interest in each other’s cultural and historical heritage. No doubt aware that this is a paltry and contrived list, the author warns that with a new premier the relationship has changed, casting lingering idealism aside and making pragmatism what really matters. The article notes that trade is growing slowly (around USD 10 billion a year) and is not changing in structure, blaming insufficient information on new export possibilities and directions of cooperation. Talks are proceeding on converting trade to the currencies of the two countries, but no candor is evident on why this would be problematic, even before the collapse of the ruble. Troubling for Russia is the intensifying cooperation for arms sales to India—by the United States, France, and Israel—, threatening Russia’s large share, which will drop to 37 percent in 2015. Modi’s response to Russian moves on times of delivery and quality is a focus, as is tension in India over Russian talks with Pakistan over arms sales to Pakistan. The article ends with concern about the long-term prospects for Indo-Russian ties.

Nezavisimaia gazeta carried a conversation with Konstantin Syroezhkin on January 15, suggesting that the world is facing global chaos. Explaining that although China has become the motor of the new architecture of Asian security and Russia regards it as a military partner, China’s interests for a certain period could be at odds with those of Russia. The new military doctrine of Russia foresees broader cooperation with the BRICS states, including China, but it has to face the fact that China insists on not participating in a military alliance or bloc. That leaves available joint production of arms, as is occurring between Russia and India, as an example of bilateral ties and joint exercises on the territory of Russia and China through the format of the SOC, but it rules out any hypothetical military alliance of Russia and China. In addition to contradicting China’s military strategy, this option is not acceptable, given historical memories, to some Russians. In response to the suggestion that the United States is very nervous about military cooperation between Russia and China, Syroezhkin says that what worries it is the modernization of the PLA, and while Russia is not alone in supplying the PLA with military technology, the reaction of Washington continues to be unjustified and not based on proof. When the questioner expressed doubt about the PLA’s prowess, Syroezhkin demurred, explaining that its fighting preparedness was on sufficiently high level. As for China’s practice of copying Russian weapons, which it then sells to third countries, he responds that in some cases it has the right to sell these, having obtained a license or the contract does not include fines for this behavior. The most promise is joint production, even if it raises the question of the transfer of Russian know-how to China. To the best of his knowledge, Syroezhkin adds, Russia is still not ready for this, although military cooperation is moving in this direction, as seen in recent contracts. The questioner also asks if Russia is able to strengthen cooperation with either China or India—as part of a military doctrine to cooperate more with the BRICS countries—, without straining ties with the other, since their relations with each other are complicated. The answer is the two are now managing their problems better, as Russia strives for a normal level of cooperation with each, expressing concern that China may be unhappy with technology going to India, but that is in the interest of Russia. Correcting the impression that BRICS can be a military alliance, Syroezhkin asserts that the maximum prospect is agreement on foreign policy. He also counters warnings that China will betray Russia and even attack it, but expresses uncertainty over why the PLA has such a powerful tank force and in its military exercises marches 2,000-2,500 kilometers, wondering against whom these moves are intended. Russia requires India and China for an alternative regional system of security to one led by the United States and its European allies, given that its idea for creating a shared security space has been rejected. November summits demonstrated that China is the motor, and Russia should free itself of any illusions that China would proceed in any manner except to serve its own interests, which can be at odds with the interests of Russia as well as those of the West, as seen in the speed with which it is advancing in Central Asia. Finally, the article ends with a warning that instead of regional alliances, the mid-term outlook is for global chaos. Instead of the reassuring commentaries of most of 2014 that Russia is part of a coalition versus the West, this interview downgrades the role of the BRICS, casts doubt on Sino-Russian relations or Russia’s leverage on China, and limits prospects to some coordination on foreign policy with India and China in a troubled future.

The impression left by the start of 2015 is that Russia’s greater focus on the region centers heavily on China, but that is not a winning strategy. Earlier concentration on the economic necessity of turning to the East is reinforced by a strategic case for this shift. Yet, whereas in the spring, summer, and early fall, this transition seemed to be within reach, counting on China’s endorsement and other countries welcoming the new Russian role, the tide had turned—through more candor, disappointment in Xi Jinping, recognition of Russia’s weak position with other states, and the awakening to economic crisis facing Russia. Not only had Russia not made significant progress in years of efforts to turn to the East, its prospects were worsening. Blame often has been placed on lack of a strategic vision, insufficient state resources, opposition by the United States, or some sort of psychological barrier against taking Asia seriously. Missing still is recognition that Russia’s model of economic development and vision of geopolitics, as well as its understanding of the international community, leaves it in China’s orbit without any leverage in an increasingly polarized region. Illusions of a multipolar world and a Russian Far East poised to become a fulcrum of development have obscured the realities of modernization and balance of power in this region.