China-Russia trade exceeded $100 billion in 2019
Russia continues to diversify relationships throughout Asia as Huawei faces more scrutiny in Europe
Hi Everyone,
5 quick takeaways for this week:
1) Sino-Russian trade exceeded $100 billion in 2019, according to the People’s Daily, up from about $84 billion in 2018. The increase is largely attributable to higher oil prices and the January 2018 expansion of the East Siberia-Pacific Ocean (ESPO) oil pipeline.
2) Japan and Russia may sign some agreement over the status of the Northern Islands/Kurils. I’m skeptical that they’ll reach some consensus (negotiations over the islands have occurred sporadically for decades, only to fall flat each time). But Russia does seem to want to diversify its economic and security options in Asia. So this time may be different, unless it isn’t.
3) Relatedly, Putin has invited Indian Prime Minister Narendra Modi to become the “main guest” at this year’s Eastern Economic Forum in Vladivostok.
Remember, Putin invited General Secretary Xi Jinping to attend the SPIEF as the "main guest." Xi, in what was perhaps a subtle slight, invited Putin to "participate" at the 2nd summit for "One Belt, One Road."
Xi may have snubbed Putin due to India's inclusion in the Russia-India-China (RIC) dialogue, as China generally prefers bilateral engagement to multilaterals, which dilutes its strength. Modi's invitation to the EEF as the "main guest" also occurs within the context of Russian security outreach to India and Vietnam. India is also reportedly mulling whether or not to sell Indo-Russian produced Brahmos missiles to Indonesia.
Russia’s economic/security outreach to Japan, India, and Vietnam doesn’t necessarily mean the Sino-Russian relationship has weakened in recent months (although it could). Putin could be demonstrating options to both domestic audiences and Chinese negotiators ahead of several potential oil/gas deals w/China. Time will tell.
4) China is reportedly launching a “big new economic project” in Belarus, according to Belarussian state media. However, the Belarussian announcement neither identified specific investment projects nor released a top-line investment figure. The Chinese side hasn’t clarified any discrete investments, to my knowledge, although Xinhua published an article the next day saying “Belarusian-Chinese economic and trade cooperation achieved fruitful results last year.” Chinese investment, if it materializes, could mitigate Belarussian losses from Russia’s decision to terminate oil and gas subsidies.
ICYMI, Belarus is becoming more important for China-Russia relations as Putin withdraws oil and gas subsidies to Russia’s neighbor. While there is considerable economic and budgetary logic to reduce inefficient subsidies, their sudden withdrawal could cripple the Belarussian economy and stimulate a political crisis in Belarus. Indeed, some have speculated that Putin seeks to topple Belarussian President Alexander Lukashenko and envelop Belarus for domestic political reasons: the absorption of Belarus into a single Union State could provide a convenient pretext to re-write the constitution and extend Putin’s official term in office beyond 2024. Successfully absorbing Belarus (which would prove very difficult for Putin) would expand Russian territory and reinvigorate Putin’s approval ratings, which have fallen in recent months to pre-Crimea levels amid growing economic difficulties and unpopular pension reform measures.
It’s unclear if Chinese investment would serve as a favor or warning to Lukashenko, Putin, or both. Alternatively, China might leverage the political situation to extract commercial benefit. Whether or not Chinese investments (or foreign aid?) in Belarus would solve Putin’s political interests in the dispute is open for debate…
There are many moving parts and uncertainties in Belarus: according to a report in Foreign Policy, Belarussian authorities have lifted a cap on the number of US diplomats allowed in the country.
5) Finally, it was another bad week for Huawei. A Chinese individual who quote studied at Beijing Foreign Affairs University, worked as a diplomat at the Chinese consulate and was Huawei’s Sales Director of Public Service unquote was also apparently recruiting Polish citizens for espionage. Huawei’s Warsaw Sales Director and one of his agents, a former Polish cybersecurity official, were arrested last Tuesday by Polish counterintelligence authorities.
Norway is also considering whether or not to ban Huawei from its 5G networks. The Report will also publish a Wednesday update on 4 big trends in 2019, including the latest and greatest on China’s 5G footprint in Russia.
Section order in this week’s newsletter: China-Russia; C&R (China and Russia) in Belarus; China in Europe; C&R in Energy Markets; Russia in Asia; C&R in Central/South Asia; China; Russia
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China – Russia
Sino-Russian trade volume exceeded $100 billion US dollars – People’s Daily (Chinese language)
“In the first 11 months of last year, Sino-Russian trade growth ranked first among China's major trading partners.”
Comment: The ESPO pipeline expansion was completed in January 2018, making year-over-year comparisons a little dodgy.
Russo-Chinese trade turnover tops $100bn in 2018 – bne Intellinews
“The trade turnover between China and Russia exceeded the targeted $100bn for the year by mid-December 2018, a new record high in trade terms and on the way to the next target of $200bn by 2020, the Chinese Ministry of Commerce announced on January 10.”
“韩正指出，保障能源安全，事关国家发展大局。…
要以共建“一带一路”为契机，深化国际能源合作，积极推进重大项目建设。
“[PSC Member] Han Zheng Han Zheng pointed out that ensuring energy security is related to the overall development of the country.
It is necessary to build a “Belt and Road” initiative to deepen international energy cooperation and actively promote the construction of major projects.”
Comment: Curious what others think about this. On the one hand, calls to strengthen energy security could refer to domestic development of China’s shale gas potential. On the other hand, the nod to “international energy cooperation and construction of major projects” could be a reference to the Power of Siberia 2/Altai gas pipeline. Or Han Zheng could be implying both measures are necessary.
Worth noting that China and Russia will have external and internal negotiations over the potential Altai/Power of Siberia 2 gas pipeline.
China successfully completes trials of S-400s, says source – TASS
“China has become the first buyer of the Russian S-400 Triumf surface-to-air missile systems. Under the contract, Russia will deliver two regiment sets of S-400 air defense missile systems to China. In July, a source told TASS that a certificate of acceptance of the first S-400 regiment set had been signed and its delivery by sea had been completed in May 2018.”
Comment: China is the “first buyer” (or is it more accurate to say the first country to field?) the S-400. This announcement occurs in the context of some tensions between Moscow and Beijing over Russia’s growing military involvement in South and Southeast Asia.
Worth noting that China’s new naval radar can monitor maritime areas the size of India, according to a report from the South China Morning Post.
Comment: I’m highly skeptical that Russia and Japan will ink an agreement over the long-running Northern Island/Kurils dispute. But they might - and Beijing’s reaction will be interesting if they do reach an agreement.
Russia is supposedly considering putting the sovereignty question in a referendum on the island. Beijing would be furious at another sovereignty referendum (after Crimea) because of sensitivities surrounding the Taiwan issue.
Russia determined to retake driver’s seat in space exploration –TASS
Comment: Not sure if this article is a serious proposal, a performative measure to soothe Russian domestic audiences, or something else. But worth noting that TASS published this article on the same day as China’s moon landing.
“There have long been discussions of liberalizing the visa regime between Russia and China. However, a serious roadblock stands in the way: Russia never unilaterally compromises on visa issues. Moscow believes that the elimination of short-term visas should be reciprocal. And while China’s Foreign Ministry has indicated it would agree to reciprocally eliminate visas, this isn’t a high priority for China. Russian visitors are still few and far between, and lobbyists for the Chinese tourism industry want to maintain the status quo to continue their industry’s control of Chinese tourism abroad…”
Russian TV series Better than Humans to be available on Netflix – TASS
“In Russia, the rights for Better than Humans series belong to Yellow Black&White and Gazprom-Media holding. Better Than Humans series will be released worldwide under the Netflix Original brand, will be translated in 25 languages and will be available exclusively in all territories except Russia and China."
C&R in Belarus
“The high-level exchanges of visits between the two countries have become more frequent and mutual political trust has increased, which, as the ambassador believes, is very important. In June this year, the Belarusian president participated in the Shanghai Cooperation Organization Summit in the Chinese city of Qingdao. Alexander Lukashenko and Xi Jinping met to exchange views on bilateral cooperation in various fields and outlined strategic areas of promoting the Belarusian-Chinese relations.”
“Belarusian President Lukashenko said recently that if Russia refuses to compensate Belarus for the losses caused by the tax reform in Russia's internal oil sector, Russia may lose its natural allies in the west. [Russian Foreign Ministry Spokeswoman] Zaharova commented on this on the 11th that Belarus is a reliable ally of Russia and that Russia’s policy of expanding strategic cooperation with Belarus is beyond doubt. Russia believes that there is still much to be done within the framework of the Russian-Belarus Union to expand the effect of deep integration of this alliance mechanism.
The presidents of Russia and Belarus held two talks on New Year's Eve in 2019. The two sides failed to reach an agreement on the oil tax reform that Russia has pursued. Russia is pursuing a tax reform that eliminates oil export taxes and increases oil extraction taxes. Since Russia and Belarus are Union State countries, there is no tariff on import and export commodities between the two countries. This has led to an increase in the price of oil exported from Russia to Belarus. Lukashenko said that this move will make Belarus bear billions of dollars in losses.”
“China’s Ambassador to Belarus Cui Qiming said that China-Belarus’s comprehensive strategic partnership of mutual trust and win-win cooperation last year remained at a high level and stable operation. High-level exchanges between the two countries were frequent, political mutual trust continued to deepen, pragmatic cooperation in various fields continued to expand, and economic and technological cooperation progressed smoothly. The Chinese side aid in social benefits and other free-of-charge aid projects have achieved fruitful results. In the future, China is willing to work with Belarus to continue to consolidate and deepen bilateral relations for the benefit of the Belarusian people.”
“Belarus wanted to keep the discount on the price of oil, while Russia proposed compensating Belarus through budget transfers. Moscow finds this option more politically expedient, since it can always withhold another transfer if Minsk misbehaves…
Minsk and Moscow butt heads on the oil and gas issues every year, trading accusations and raising their voices to get a better deal. Yet they always end up settling their disagreements. The current dispute is different. Moscow last took such a categorical stand in 2002, when Putin proposed that Belarus’s six provinces become regions of the Russian Federation.”
“Belarus has lifted a long-standing cap on the number of U.S. diplomats allowed in the country, in what U.S. officials see as a significant diplomatic breakthrough with the ex-Soviet nation as its ties with Russia fray.”
China in Europe
Poland: Huawei exec, Polish security expert spied for China – AP
“TVP identified the arrested Chinese man as Weijing W., saying he was a director in Poland at Huawei. It said he also went by the Polish first name of Stanislaw and had previously worked at the Chinese consulate in Gdansk.
A LinkedIn profile for a man named Stanislaw Wang appears to match details of the man described by Polish television. Wang’s resume said he worked at China’s General Consulate in Gdansk from 2006-2011 and at Huawei Enterprise Poland since 2011, where he was first director of public affairs and since 2017 the “sales director of public sector.” The resume said he received a bachelor’s degree in 2004 from the Beijing University of Foreign Studies.”
Comment: Is this a typical career progression for MSS intelligence officers: study at 北外 (Beijing University of Foreign Studies), do an assignment abroad under diplomatic cover, then work for a state-affiliated technology company?
“An unusually blunt warning by Czech intelligence against the use of Huawei and ZTE products in telecommunications infrastructure was met with similar bluntness from the PRC. The embattled Babiš government, whose survival depends on the support of the country’s most CCP-friendly figures, was subjected to a pre-Christmas diplomatic ritual hyped by the state-media as “correcting” the spooks’ “mistaken” advice. After an outrage in the Czech Republic, the PM backpedalled and reiterated the NÚKIB warning was being treated “seriously”.”
China – Partner and Systemic Competitor – BDI (The Voice of German Industry)
“In the election year of the EU Parliament, the BDI compiled 54 demands to counter problems with the state-dominated Chinese economy. We call for a strengthened economic policy framework for the European single market. This should also bind companies from non-market economy countries to the liberal market economy order of the EU. German industry wants to continue to make use of the opportunities offered by economic cooperation.”
Comment: BDI rejects calls for “containment” or “de-coupling” but also proposes working with “like-minded partners” and supports an EU alternative/complement to the BRI.
“Marine Le Pen tells Dutch daily NRC she is no longer for an EU exit: "we can radically change the EU, from inside". She wants to turn the "supranational EU, which resembles a prison" into an "alliance of nations".”
Comment: Not directly China-Europe related but interesting.
C&R in Energy Markets
BP Thinks It's Sitting on Another Giant Gas Field in the Caspian – Bloomberg
“Caspian gas arriving in Southeast Europe will help reduce the region’s heavy dependency on the fuel being piped from Russia. It will offer an alternative source of supply, along with the increasing role of liquefied natural gas from suppliers such as the U.S. and Qatar. The two phases of Shah Deniz will produce about 26 billion cubic meters of gas a year, more than the annual consumption of Poland.”
Comment: Lots of excellent info and analysis in this article. Worth a read if you’re interested in energy, particularly as it relates to China and Russia.
Russia in Asia
From Bear Market Brief: Putin invited Indian PM Narendra Modi to come to the Eastern Economic Forum in Vladivostok this year as the "main guest."
Comment: “Putin, General Secretary Xi, and PM Modi met at the second-ever RIC (Russia-India-China trilateral in Buenos Aires in December). Putin invited Xi to attend the SPIEF as the "main guest." Xi, in what was perhaps a subtle slight, invited Putin to "participate" at the 2nd summit for "One Belt, One Road."
Xi may have slighted Putin due to India's inclusion in the RIC dialogue (China prefers bilateral engagement to multilaterals, which dilute its strength). Modi's invitation to the EEF as the "main guest" is even more interesting within the RIC context and Russian security outreach to India and Vietnam.
India exploring sale of BrahMos cruise missile to Indonesia – Hindustan Times
“India is exploring the possibility of selling the BrahMos cruise missile to Indonesia, and a team from the Indo-Russian joint venture that makes the weapon system visited a state-run shipyard in Surabaya last year to assess the fitting of the missile on Indonesian warships, people familiar with developments said.”
Russia to implement S-400 contract with India, senior diplomat says
“Moscow will fulfill its obligations under the contract to deliver the S-400 missile systems to India, Russian Deputy Foreign Minister Sergei Ryabkov told TASS on the sidelines of the Valdai Discussion Club’s meeting taking place as part of the Raisina Dialogue conference in New Delhi.
"We are capable of dealing with the financial aspect of the contract, let alone the technical one, regardless of decisions made by the United States," the senior Russian diplomat said. According to Ryabkov, although Russia has been under Western sanctions for several years, defense cooperation "is not falling apart, it is progressing." "If it [the United States] makes such decisions, then it will tarnish its own image not only in Russia but also in other countries that want and will cooperate with us," he added.”
Comment: Despite Ryabkov’s comments, the US is not the country most concerned by this sale.
Tokyo’s latest statements on Kurils distort essence of Putin-Abe agreements — ministry
Comment: There’s been a flurry of diplomatic activity between Japan and Russia over signing a peace treaty, the Northern Islands, etc. I’ve ignored it because every 6 months or so Putin reaches out to Japan, stalls, and withdraws. Moscow wants to preserve its NE Asia options without upsetting Beijing too much, while Tokyo patiently (and perhaps wisely) indulges the outreach as it expects Russia to re-align its leadership and foreign policy in the medium to long-term. Japan and Russia will likely maintain the engage-stall-withdraw cycle for some time.
Pacific Fleet ships wrap up visit to Philippines – TASS
“The group of Pacific Fleet ships under the command of Chief of Staff of the Pacific Fleet’s Submarine Forces Rear Admiral Eduard Mikhailov embarked on a long voyage on October 1, 2018. The main goal of the voyage was the demonstration of St. Andrews’s flag in the Asian-Pacific region and the subsequent development of naval cooperation with the Pacific Rim countries. During this time the sailors called on ports in Sri Lanka, Japan, South Korea, Brunei, Singapore, China and India, as well as took part in the Russian-Indian military exercise "Indra Navy 2018."”
C&R in Central/South Asia
The New Indian Realpolitik – Constantino Xavier for Foreign Affairs
“China Is Pushing India’s Foreign Policy Into Uncharted Waters”
Kyrgyzstan authorities betray nerves over anti-China rumblings – Eurasianet
“Days after an anti-China rally brought around 300 young men onto Bishkek’s central square, President Sooronbai Jeenbekov and a top member of the Cabinet were on the defensive. Speaking at a meeting with residents of the northern Chui province on January 9, Jeenbekov said Kyrgyzstan should be grateful to have an economically willing neighbor like China. He also promised to “take measures” against pot-stirrers looking to damage Kyrgyzstan's relationship with China or cause trouble in general.”
Comment: Differing elite/popular views of the Belt and Road, not only in Kyrgyzstan but also in Ecuador. For further reading, check out this NYT article: It Doesn’t Matter if Ecuador Can Afford This Dam. China Still Gets Paid.
Astana Says China Allowing 2,000 Ethnic Kazakhs To Leave Xinjiang – RFE/RL
China
“All across China, there is already a heightened sense of being watched. The country has a network of around 170 million surveillance cameras. Another 400 million are set to be installed in the next three years…
There is a fear that people with contacts and resources will be able to rig their credit scores to enjoy the benefits. In a country where corruption is commonplace it's not impossible to see the social credit system increasing the divide between the haves and have-nots. Furthermore, there doesn't appear to be any official or legal means to reverse a bad score.“
“非洲谚语“两象相争，草地遭殃”，说的就是这个道理。”
“An African proverb: if two elephants [Great Powers] fight, the grass is ravaged”
Comment: Zhong Sheng is the voice of the Chinese Communist Party
A New Cold War Has Begun – Robert Kaplan for Foreign Affairs
Comment: An interesting argument.
From Bill Bishop’s Sinocism newsletter: “This a remarkably confident conclusion-“Because, in a very different way than the old Soviet system, the Chinese system—the more authoritarian it gets—is over time more prone to crack up than America’s.” I wish I could share Kaplan’s certainty. I would advise the world to put more energy into preparing for the CCP succeeding than it collapsing”
“Significantly, while China asserts that it will share its space technology with other countries, framing outer space as a “global common,” and abide by international and bilateral agreements, China’s past behavior of staking claims to territory based on “first presence” and historical revisions, to include the SCS islands, Tibet, and Taiwan, offers us little assurance that it will follow through on its commitments to recognize other stakes on shared territory in outer space, to include the Moon, especially if those areas are rich with resources.”
How the State Is Co-Opting Religion in China – Ian Johnson for Foreign Affairs
“Today’s Chinese state, much like the imperial state, can be a generous benefactor, helping to rebuild temples, train new Buddhist and Taoist clergy, and set up international exchanges with the faithful in other countries. But toward those out of favor—today largely Christians and Muslims—the state can be harsh, setting up reeducation camps, demolishing mosques and churches, and persecuting leaders.”
Russia
Russian views of US nuclear modernization – Dmitri Trenin for Bulletin of the Atomic Scientists
“This new arms race is taking place in an atmosphere of deepening mistrust, increasing the risk that a miscalculation or regional conflict will escalate into a US-Russian military collision. While a military conflict would not necessarily lead to nuclear war, the entanglement of nuclear and advanced non-nuclear systems in both countries is cause for grave concern….
Another key technological development that substantially impacts strategic stability, and Russian and US nuclear doctrines, is the progress in cyberweapons. Cyberattacks that could potentially paralyze military and civilian infrastructure, command and control centers, and government operations present a major challenge to strategic planners. The new Nuclear Posture Review allows for the use of nuclear weapons in response to such attacks against the United States. Moscow’s official position does not provide for that, but Russian strategic planners face a similar problem.
The issue for Russia – and for the United States – is the notorious difficulty of establishing the sources of cyberattacks and distinguishing genuine cyberattacks from false-flag operations, including those seeking to provoke a US-Russian collision. Over time, both countries may become better at tracing the sources of cyberattacks, but in the current atmosphere of zero trust between Moscow and Washington, which is likely to persist for the foreseeable future, cyberweapons already pose considerable risk to both countries…
Against this background, the revived US interest in tactical nuclear weapons raises in the Russian mind the Cold War-era specter of a limited nuclear war that the United States would wage in Europe to leave its own territory unscathed. Washington’s new emphasis on air-delivered gravity bombs such as the earth-penetrating B61–12 that will be deployed in Europe in 2020, and its development of nuclear-armed sea-launched cruise missiles, are viewed in Russia as proof that the United States is lowering the nuclear threshold – in order to be able to fight a nuclear war a long way from its borders and to escape Russian retaliation.
The Russian leadership, however, is most unlikely to play by the rules imposed by its adversary. It will not accept a military defeat leading to humiliation, loss of control, and probably loss of the country too. Russian military doctrine allows a first use of nuclear weapons when the country’s existence is in danger. And any nuclear attack on Russian forces would lead to a nuclear response.”
Russia in 2019: What Putin’s Annual Press Conference Revealed – Tatyana Stanovaya for Carnegie
“The first conclusion is that Putin and the Russian regime as a whole won’t be taking any meaningful steps toward reconciliation with the West. Putin made it clear that the Russian leadership has not set itself the task of getting sanctions lifted. Instead, it’s bracing itself for a lengthy existence in a hostile environment…
The second conclusion is that Russia is preparing for the inevitable deterioration of the balance of nuclear forces and the growing risk of a nuclear war. Putin made it clear that Russia is not ruling out worst-case scenarios, and warned that the threshold for a nuclear strike has been lowered (he blames the United States for this, but under Putin’s logic, Russia needs to respond)…
The third domestic policy conclusion is that the Kremlin is not planning to launch any significant economic reforms. It regards the situation in the country as positive, stable, and conducive to implementing the ambitious plans set out in Putin’s May decree upon his reelection. The social consequences of tax reforms—including hikes in fuel prices, VAT, and utilities payments—are clearly being underestimated…
The main takeaways from Putin’s press conference are that he has less and less room to maneuver on foreign policy, and that his optimism about a “breakthrough” in the domestic arena is clearly divorced from reality. Circumstances are forcing Putin to turn from geopolitical problems to domestic ones, and that is proving difficult.”
Russian Navy to put over 30 Poseidon strategic underwater drones on combat duty – TASS
“"Two Poseidon-carrying submarines are expected to enter service with the Northern Fleet and the other two will join the Pacific Fleet. Each of the submarines will carry a maximum of eight drones and, therefore, the total number of Poseidons on combat duty may reach 32 vehicles," the source said.”
Russia’s Avangard hypersonic boost-glide system – Michael Kofman of Center for Naval Analyses
Russia in 2019: The Ever-Steepening Downward Spiral - Stepan Goncharov of Levada Center for Riddle
“Anxiety is also on the rise; the proportion of Russians who believe 2019 will be worse than last year has grown from 16% to 33%. A comparable level of concern came in 2014, amid a currency collapse and the outbreak of armed conflict in eastern Ukraine…
Firstly, international relations have become much more complex. The share of Russians who consider a conflict with a neighbouring state in the coming year to be likely has risen from 19% to 30% compared with the previous year. Fears that Russia will become embroiled in another conflict are being sounded again, as one of several worst-case scenarios for 2019. However, Russia’s military adventures abroad no longer enjoy the same degree of legitimacy.”
That’s all for this week’s edition of The Report, folks. Thanks for reading.
Until next time,
Joe Webster
The China-Russia Report is an independent, nonpartisan weekly newsletter covering political, economic, and security affairs within and between China and Russia. All articles, comments, op-eds, etc represent only the personal opinion of the author(s) and do not necessarily represent the position(s) of The China-Russia Report.