China getting ready to buy Russia

China is in no hurry. It is enjoying long-term stable economic growth (with 7% annual GDP growth) despite the ongoing global financial and economic crisis. The world is witnessing Beijing’s sweeping success in energy self-efficiency, and the development of its space technologies and high-tech industry.

Its the same with China’s foreign policy: The country carries out strategic planning for decades ahead, even longer, which has become glaringly evident in the wake of the current Russian aggression against Ukraine, and its repercussions. China sits on the river bank, while the floating corpse of a “well known northern friend” is already visible in the distance.” Quite effortlessly, China has become Russia’s indispensable partner, and is now preparing to take full advantage of its new opportunities.

First of all, China is interested in getting full access to the Russia’s natural resources. This thesis is backed by the Kremlin message voiced by the Deputy Prime Minister Arkady Dvorkovich of an upcoming gift for Beijing, such as creating the possibility for China to get an over 50% share in Russian oil and gas development projects. Russia is not ready yet to totally give away its offshore deposits of natural resources, but it seems to only be a matter of time.

Most likely, most of the expectations of the Russian government with regard to Chinese investments in Russia (for example, a RUB 2.8 trillion project for a high-speed roadway construction) are futile. The reason is simple - China will be waiting for full access and control over Russian assets, and only then might it invest in some development.

In this pretext, China’s withholding a $25 billion prepayment for the construction of the Power of Siberia gas pipeline seems logical. By the way, it is Turkmenistan, not Russia, which will be the main source of China’s gas imports (as of today, it is already 20 billion cubic meters per year, with the prospect of increasing the volume to 65 billion cubic meters per year by 2020). Beijing is also actively expanding its presence in Kazakhstan, where it has already been getting more than 10 million tonnes of oil annually.

In the meantime, trade between Russia and China dropped by 0.5% in 2014 to $88.4 billion. In January, 2015, Chinese exports to Russia decreased by 42.1%, to $2.8 billion, and the the supply of Russian goods to China fell by 28.7%, to $2.5 billion. This means that Russian economy did not manage to get a full return from the West to the East.

The most paradoxical thing is that now Russia has to import technology from China, and not vice versa as before. This is especially relevant in the wake of the sharp decline in trade and economic cooperation between Russia and Europe.

Still, the game is far from over. The Celestial Empire is actively maneuvering between all parties in the current conflict in Ukraine. On the one hand, we witness statements by Chinese ambassadors (for example, in Brussels) that the West needs to consider Russia’s interests, including those in Ukraine (which does not go down well with Kyiv). On the other hand, China is trying to develop trade and economic relations with Europe and the United States. China is trying to provide some compensation for Ukraine in the form of an agreement on economic and technological cooperation. All the same, the Ukrainian government should consider requiring more compensation from China for its passive position, which is effectively supportive of Russia.

REUTERS

According to official Beijing, such a “friends with everyone” strategy will result in greater trading profits. But China seems to forget that in this case, it also shows that it’s not ready to become a global political center, to take some responsibility for setting global rules and ensuring global stability. Global respect often costs a lot more than short-term trading gains, so China may eventually lose if it bets solely on the economy. By merely yrying to “see how the gander hops” with regard to the Russian aggression against Ukraine, China is showing that it’s not ready to create new global rules of the game.

In the meantime, Russian President Vladimir Putin is performing pre-delivery services of his country before the deal with China. For example, on December, 31 2014, Putin signed a law “On Territories of advancing socio-economic development (TADs) in the Russian Federation.” This bill provides for the possibility of virtually any land plots to be used for the construction of infrastructure facilities. In such TADs, companies will be able to hire migrant workers without the permission of the Federal Migration Service. That is, from now on, there exist no more barriers to an open colonization of Russian territories bordering with China. Moreover, the Russian government will actually contribute to this Chinese “colonization” of Russia.

In this context, it is worth recalling the statement of the deputy head of China Li Yuanchao made in May, 2014, that “Russia has a vast territory, and China has the most hardworking people in the world. If you combine these factors, you can get a significant impetus for development.” In such situation, China certainly will not rush with its investments into Russia. First, a mass of migrant workers will go in, then the country will get full control over the desired resource assets, and only then it will be possible to invest in the production and transportation of natural resources. Meanwhile, Russia will not get a single piece of that pie. Although the projects will be implemented on Russian soil with Chinese investments, for Chinese investment, it’s the Chinese companies and Chinese workers who will perform all the work, and the final added value of the products will be manufactured in China, where it the manufacturing facilities will remain, and also the collected taxes.

REUTERS

So far, this process is at the middle stage of development, and Beijing is making the most out of Russia’s isolation. By the way, it should be noted that China will further benefit from supporting Russia’s weak position given the current course its leadership has taken. With this purpose, the Celestial Empire will provide Putin's regime with some help to win time for the complete colonization of Russia’s Far East and Siberia. An early change of the Putin regime in Russia with a pro-Western leader coming to power may thwart China’s plans slightly. But by that time a strong foundation will have been laid for an informal colonization of the huge Russian territories in the East. And once again, the antique geographical map once presented to the Chinese leadership by German Chancellor Angela Merkel will become relevant. Failing to maintain its huge territory, Russia will be forced to transfer a significant part of its attention to more effective states. In this context, Japan shouldn’t be forgotten either by the way.

... The Kremlin’s passion for seizing foreign territories will unavoidably end in the loss of some of its own.

Roman Rukomeda is a political expert

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