Russia risks-on with outreach to India and Vietnam and oil supply cut
Chinese and Russian perspectives on the French riots
Hi Everyone,
Quick summary:
1) Chinese state media praises French President Emmanuel Macron’s reforms and criticizes what Xinhua terms the “riots” in Paris even as Putin uses state resources to amplify the crisis.
2) Russia builds security ties with India and Vietnam.
3) An emergent Russia-Saudi Arabia-UAE oil axis has implications for China, the EU, and other energy importers.
4) Russian domestic politics: Putin may be confronting or chastening Russian Prime Minister Dmitry Medvedev. Putin also hinted at additional economic reforms. For whatever reason(s), Putin seems increasingly willing to accept greater risk in domestic politics.
5) How will China and Russia respond to Trump’s legal problems, particularly if he seeks to distract from domestic political troubles by stimulating tensions with Iran and/or North Korea?
Finally, there are reports that hundreds of Russian tanks are massing along the Ukrainian border. Most observers of Russia are doubtful that Putin will escalate the conflict in the Donbas: Russia would pay a steep political and economic price that could threaten the regime’s popular and elite support. Still, Russian security services (and Putin himself) have consistently misjudged risks in Ukraine, and Putin may be willing to gamble anyway amid declining personal approval ratings and a grim economic/political outlook. Putin may seek to wage a “small, victorious war” (a la Crimea) to consolidate his domestic political position despite the considerable perils of escalation.
It’s worth remembering Bobo Lo’s explanation of Russian foreign policy motivations: “Russian foreign policy would continue to be based on the primacy of the Putin interest and the premise that the perpetuation of the regime is the highest good from which all other objectives flow. This intense personalisation of the Russian national interest will remain in place as long as Putin sits in the Kremlin, and probably long after.”
Five Takeaways:
1) Chinese state media criticize Paris riots, indicate support for Macron’s reforms
Chinese state media took a dim view of events in Paris, saying the “riots” are economically destructive. Xinhua also appeared to praise Macron’s economic reforms, noting they would deliver long-term benefits even if they also produced short-term pain.
Putin, meanwhile, amplified the riots through state resources, such as Russia Today, and also met unashamedly in Moscow with Francois Fillon, one of Macron’s rivals in the 2017 French Presidential election.
2) Russia builds security contacts with Vietnam, India
Russian state media this week quoted Vietnam’s Deputy Defense Minister as calling Moscow “Hanoi’s reliable ally” during a meeting with Russian Defense Minister Sergei Shoigu. Meanwhile, the Russian Security Council said it would hold consultations with Indian officials; Russian state media also repeated calls by Indian forces to conduct military exercises in Russia. There were also unconfirmed reports in the media this week that the Indian Navy will operate at Cam Ranh Port in Vietnam. Beijing is unlikely to be happy with these developments. As a reminder, Russia is a major military supplier to both India and Vietnam.
3) Putin’s embryonic oil axis
Vladimir Putin and OPEC agreed to cut oil production by 1.2 million barrels per day (for reference, world demand is about ~100 million barrels per day). The production cut will, of course, support oil prices. Russia has agreed to cut its production by 2%, while other producers will cut production by about 2.5%, according to CNBC. Russia/OPEC oil cooperation has been growing since 2016.
The Saudis pushed for the supply cut, not Putin. Several Russian producers, however, led by Rosneft’s Igor Sechin, have indicated they strongly oppose any measures to limit production. Putin may have acquiesced to the supply cut as he may seek to increase oil prices to Europe ahead of the EU’s May Parliamentary elections and amid riots in Paris over rising fuel costs. It’s also worth noting that Macron confronted MBS at the G20 in Paris.
Despite the wildly divergent political, cultural, religious, demographic, and geographic profiles of Russia, Saudi Arabia, and the UAE, they do share some commonalities. All three countries are major oil producers and governed by authoritarian political systems. There’s very strong evidence that governments in all three countries interfered in the US 2016 Presidential election and supported then-candidate Donald Trump; and all three countries have increasingly tense relationships with the United States and, more broadly, the West.
The EU, China, and India can’t, for now, provide the security reassurance that regimes in Saudi Arabia and the UAE crave. Embracing Putin allows MbS and MBZ to demonstrate to the West they have at least somewhat plausible alternatives. Putin may seek to build an oil axis, and soon: he plans to visit both Saudi Arabia and the UAE.
But China likely won’t be pleased by the oil supply cutback or a Putin-led oil cartel. China is the world’s largest oil importer; the cutback, if sustained, could reduce economic growth in China this year by tens of billions of dollars. Putin knows this, of course, but appears willing to tolerate greater risk in his relationship with the PRC.
4) Putin slowly pushing Medvedev aside?
In August, Anders Aslund noted Medvedev’s deteriorating standing in the Kremlin: “Deputy PMs Dvorkovich & Prikhodko sacked. Brothers Magomedov in jail [The Report: Ziyavudin Magomedov is a billionaire and a former(?) Medvedev ally. He and his brother Magomed Magomedov were arrested in March]. Press secretary Timakova left for media. Lone and ready to be ousted?” Medvedev was also out of public view in August for several weeks due to an injury or, as the case may be, an “injury.”
There’s more evidence that Russian Prime Minister Dmitry Medvedev is on the outs: he looks like he’s aged 5-10 years in the past several months in this photo from TASS. Medvedev has also been rumored to say about his role in the new term: “I watched a few series of the show House Arrest.” [I found this quip due to the good folks at Bear Market Brief]. Intra-elite competition may be heating up in Russia.
Putin also hinted at additional economic domestic reforms this week; Medvedev is an obvious potential scapegoat for any pension reform failures.
5) Trump’s legal problems: implications for China and Russia
You may have heard about the legal problems of one Donald Trump this Friday. According to legal analyst Ken White: “Federal prosecutors filed three briefs late on Friday portending grave danger for three men: the former Trump campaign chair Paul Manafort, the former Trump fixer Michael Cohen, and President Donald Trump.”
Donald Trump’s mounting legal problems pose obvious problems for Vladimir Putin: the investigation into the Trump campaign’s ties with Putin could spur additional US sanctions. Putin also can’t count on China for more than rhetorical support in the wake of additional US/EU sanctions: China has largely complied with post-Crimea sanctions.
China appears to anticipate that Trump will stimulate greater tensions with North Korea as he faces growing domestic political and legal difficulties. The PLA Air Force entered South Korea’s Air Defense Identification Zone (ADIZ) last week, most security analysts believe, due to concern over US military activity in the region should US-DPRK negotiations fail. General Secretary Xi also met with the DPRK’s foreign minister this week.
Iran is a wildcard. This week the US sent an aircraft carrier to the Persian Gulf “in a show of force against Iran,” according to the Wall Street Journal. Trump’s saber rattling or stringent enforcement of sanctions against Iran would likely alarm Beijing; Moscow would be less displeased to see another 2 million bbl/d of Iranian exports taken off the market but is neuralgic about regime change. For more on China-Russia-Iran dynamics, please see this Chatham House talk with Dina Esfandiary and Dr Ariane Tabatabai, authors of Triple Axis: Iran's Relations with Russia and China.
Thank you for reading China-Russia Report and telling your friends and colleagues about the newsletter. We at The Report appreciate it.
We’re still testing out the format. This week we’ve arranged the newsletter with the following section order: China-Russia; Russia-India-China; China and Europe; Russia and Asia; Central Asia; China and Russia in Energy Markets; and, finally, sections on China and Russia.
China-Russia
China data: Russia tops the supplier list to independent refineries in Nov – S&P Global Platts
“Russian crude oil shipments by China's independent refineries rose 12.8% on month to a historical high of 2.84 million mt in November, once again the top supplier for the sector, S&P Global Platts monthly survey showed.
Meanwhile, Russian ESPO imports hit a fresh record high of around 2.47 million mt last month, up 28.9% on month. This accounts for about 87% of the total imports from Russia, with the rest being Urals and Sokol.”
“Russian Foreign Ministry spokesman Zakharova said at a regular press conference on the 5th that Russia and China cherish each other's friendly relations; this relationship is not determined by external factors. On the same day, in response to a Xinhua reporter, Zakharova said that when the two heads of state met during the 13th summit of the leaders of the G20, Russia clearly attaches great importance to developing relations with China. The two sides cherish each other's friendly relations. This relationship "is not determined by the international situation and is not determined by the regional situation." Russia and China are close neighbors, and the borders, geography, history and people's interests are closely linked.
Zakharova pointed out that the leaders of the two countries have maintained frequent contacts through regular exchange of visits, participation in the historical and economic activities of the two sides, and mutual telephone calls. When the official business is too busy to attend in person, they will delegate relevant representatives to deepen cooperation in various fields, negotiations and other activities. Zakharova said that China is a responsible international affairs participant. In the current unstable international environment, close dialogue between responsible international affairs participants is important. "China and Russia have shown this quality to the world more than once."”
Moscow to get cutting-edge facial recognition to fight crime, vows mayor - TASS
Comment: Fascinating if Chinese equipment was used and/or if Chinese security services provided technical advice/support.
Comment: Not sure if there’s a better way to translate (秀实力 = “show of strength?”). Xinhua has referred to a US aircraft carrier deployment in Asia with similar language (秀实力!). It struck me as sarcastic then, although that doesn’t seem to be the intent here.
Russia-India-China
Russia-China-India Trilateral Leaders' Summit Reconvenes at 2018 G20 – Ankit Panda for The Diplomat
“For New Delhi, Modi’s participation in the RIC trilateral leaders’ summit may have appeared to serve as a form of balance given that this year’s G-20 also saw the convening of the first-ever trilateral leaders’ meeting between India, Japan, and the United States.”
China and Europe
International observer: French riots damage Macron’s reform – Xinhua (Chinese language)
“分析人士指出，持续发酵的抗议活动不仅让法国经济和国际形象受损，还可能导致法国总统马克龙上台以来推进的改革进入“失速”轨道。
实际上，2018年以来法国柴油和汽油价格均出现不同程度的上涨，民众已经颇为不满。
法国极右、极左等政治势力也借机抨击马克龙政府，部分政党更是决定于10日联合向法国国民议会提交对政府的不信任议案，以寻求弹劾政府。
法国经济和财政部长勒梅尔近日在新闻发布会上表示，自从针对政府上调燃油税的示威抗议活动开始以来，法国经济受到“严重和持续”的影响，抗议活动波及地区的批发业销售额下降15%至25%，零售业销售额下降20%至40%，餐饮业营业额下降20%至50%，酒店业的预订人数更是罕见地下降15%至20%。
法国商品运输和物流行业协会则表示说，抗议活动和骚乱已给该行业造成至少4亿欧元损失。
马克龙执政一年多来，推进了一系列整体上削减民众福利水平的改革举措，同时还取消“巨富税”、资产税等，鼓励法国人将目光从“分蛋糕”转向“做蛋糕”。这些改革措施尽管利在长远，但短期内势必触动一些阶层的利益，导致民众不满增加。
马克龙取消明年上调燃油税的计划后，弥补财政收入缺口将成为法国政府面临的一大难题。如果这一问题解决不当，将导致法国明年财政赤字增加，进而影响到马克龙在欧盟范围内的威信，令他“重塑”欧盟的雄心受挫.”
“Analysts pointed out that the continuous protests not only damaged the French economy and international image, but also damaged the reforms that have been promoted since French President Emmanuel Macron took office.
In fact, the prices of diesel and gasoline in France have risen to varying degrees since 2018, and the public has been quite dissatisfied.
French extreme right and extreme left political forces also took the opportunity to attack the Macaron government. Some political parties decided to jointly submit a motion of no confidence in the government to the French National Assembly on the 10th to seek impeachment.
French Economy and Finance Minister Lemaire said at a news conference recently that the French economy has been affected in a “serious and sustained” manner since the beginning of demonstrations against the government’s fuel tax hike. Wholesale sales fell in the area fell 15% to 25%, retail sales fell 20% to 40%, catering business turnover fell 20% to 50%, and the number of bookings in the hotel industry dropped by 15% to 20%.
The French Association of Commodity Transportation and Logistics Industry said that protests and riots have caused at least 400 million euros in losses to the industry.
Over the past year or more, Macron has promoted a series of reform measures, reducing the people’s level of welfare benefits. At the same time, he has also abolished the “rich tax” and asset tax, encouraging the French to turn their attention from “dividing cakes” to “making cakes”. Although these reform measures are beneficial in the long run, they will inevitably touch the interests of some sectors in the short term, leading to increased dissatisfaction among the people.
After Macron canceled the plan to raise the fuel tax next year, making up the fiscal revenue gap will become a major problem for the French government. If this problem is not properly resolved, it will lead to an increase in France's fiscal deficit next year, which will affect the prestige of Macron in the EU, and could frustrate his ambition to "reshape" the EU."
Comment: Note use of the word “riots.” China has ample economic interests in France/the EU, and many in China (and elsewhere) will be unsettled that Chinese tourists are watching the riots and learning from it. Also, note that Xinhua appears to express support for the reforms.
China, France pledge to strengthen cooperation – People’s Daily
“Chinese Vice Premier Hu Chunhua and French Minister of Economy and Finance Bruno Le Maire said here Friday their countries are willing to enhance bilateral cooperation in various fields. The pair co-chaired the Sixth China-France High-Level Economic and Financial Dialogue on the day in Paris, which was themed "building a long-term and close China-France comprehensive economic strategic partnership." Hu said that the Sino-French relations have witnessed a healthy and stable development in recent years, and pragmatic cooperation in various fields has achieved remarkable results. On Dec. 1, Chinese President Xi Jinping and French President Emmanuel Macron met during the G20 summit and reached a series of important consensuses on the major issues of Sino-French cooperation, Hu said…
Le Maire said that France attaches great importance to developing France-China relations, noting the two heads of state successfully met during the G20 summit and a new chapter would be drawn in France-China relations.”
China’s real endgame in the trade war runs through Europe – Fred Kempe for CNBC
“European Union officials concede that China already has exercised veto power it has over policies that require unanimity, and because some officials are pushing privately for a change to majority voting. Concerns are growing as Beijing’s influence has grown more rapidly than anyone anticipated. Chinese foreign direct investment in the EU has risen to $30 billion in 2017 from 700 million before 2008.
In short, global markets and news reports miss the real story with their single-minded focus on whether or not President Trump and President Xi can reduce tensions and close a trade deal over the next 90 days. The bigger game, increasingly apparent in Europe, is whether China can replace the United States over time or at the very least significantly reduce its influence.”
Portugal signs agreement with China on Belt and Road Initiative – SCMP
“Chinese President Xi Jinping pressed Portugal to formally join Beijing’s “Belt and Road Initiative” during his visit to Lisbon, as the southern European nation signed a memorandum of understanding with China on the massive infrastructure plan.
Xi also did not persuade Spain to formally join the initiative during his stop in Madrid last week. Some leading European countries such as Germany have expressed their concerns about Chinese investment through the belt and road, and European Union countries last week agreed to a framework regulating foreign investment, particularly from China.”
Chinese president arrives in Portugal for state visit – People’s Daily
“Chinese President Xi Jinping arrived in Portugal on Tuesday for a two-day state visit aimed at carrying forward friendship and expanding cooperation between the two countries. It is the first visit by a Chinese head of state to the European country in eight years. Two Portuguese fighter jets escorted Xi's plane as it entered the country's airspace.”
General Secretary Xi visit to Portugal – Xinhua (Chinese-language)
“双方要密切高层交往，加强两国政府、立法机构、政党、地方、民间交流，深化政治互信，筑牢两国友好政治根基.”
Comment: Interesting. This paragraph calls for closer ties at the political party level.
China, Portugal pledge to jointly push forward construction of Belt and Road – People’s Daily
“On international affairs, Xi said that the two countries should increase coordination and cooperation, promote trade and investment liberalization and facilitation, and jointly oppose protectionism and unilateralism. He also expressed the hope that Portugal could continue to play a positive role in pushing forward the China-Europe relations in the right direction.”
China, Portugal pledge to jointly push forward construction of Belt and Road – People’s Daily
“The two sides will strengthen their Blue Partnership to facilitate marine cooperation and grow marine economy for their own countries, according to the joint statement.”
Comment: Don’t underestimate the importance of this fisheries agreement. Fish are probably the most important resource in the South China Sea.
Central Asia
Kazakhstan: Smells like election spirit – Eurasianet
“The proliferation of consensus-seeking measures coming from the government – and Nazarbayev more specifically – suggest something is afoot. Beisebayev pointed to the planned increase from January of salaries for state employees, the hike to the minimum wage and the authorities’ efforts to tamp down food prices as other examples. “Usually such measures are taken before parliamentary and presidential elections. The government uses such policies to instill a good mood about the current government,” Beisebayev said.
The consensus in some quarters is that early elections next year, possibly in spring, are likely. But it is not clear what the public might be asked to vote for. According to the current schedule, elections for parliament’s lower house, the Majlis, are due in 2021, while Nazarbayev’s current five-year term expires in 2020.”
“Eurasianet: How has the rising influence of China affected Kyrgyzstan? And what do you envision happening in the future?
Otunbayeva: The rise of China is generally a positive fact for Kyrgyzstan, because we have a region which has intensive trade and economic ties with China. China is the second economic power in the world; it’s a neighbor – a direct neighbor. It gives us a lot of good promises. China became a source of credits recently and China offered us a lot of assistance over this difficult transition time. […] So in this regard, China’s growing role in international affairs, this will be considered certainly as a positive fact.
Eurasianet: How can Kyrgyzstan take advantage of its position between China and Russia but still protect its sovereignty?
Otunbayeva: It happens that we are in an organization: the Shanghai Cooperation Organization (SCO). Russia and China are both members. Plus the Central Asian countries, and now plus India and Pakistan. So it means that regarding security, we have common goals, common tasks, and common threats. And I am sure that [Kyrgyzstan’s position] will not be between two big elephants or foes, but we are gaining in this organization the advantages of both countries. Certainly there exist controversies, problems between those two countries, Russia and China. But as a strategic ally of Russia for many decades, Kyrgyzstan is in the position to find a way to deal with each of these countries. And also we have strategic relations with China and we want to solve our problems – today’s problems in economic and social affairs – according to the interests of both countries.”
Telephone conversation with President of Kazakhstan Nursultan Nazarbayev – The Kremlin
“In advance of the meeting of the Supreme Eurasian Economic Council on December 6 in St Petersburg and an informal meeting of the CIS leaders, the presidents discussed current aspects of interaction on multilateral integration platforms.”
Russia demands US probe into death of civilians in coalition’s airstrikes in Afghanistan - TASS
Analysis: TAPI And Other Turkmen Tales – Bruce Pannier for RFE/RL
“There was never any mention in TDH or Orient of why 35 kilometers of pipeline were still needed for a pipeline that was announced as being completed eight months ago. While there could have been some damaged segments somewhere, the length of pipeline needed -- more than 15 percent of Turkmenistan's total section of TAPI -- suggests there never was any pipeline in at least part of the country…
“The abundance of goods in stores in Turkmenistan is another interesting story that Turkmen media have been keen to cover lately.
These reports come as information has been leaking out for more than two years of shortages of basic goods in Turkmenistan. People are lining up out into the streets to get bread, flour, cooking oil, and sugar, all of which are rationed and all of which sell out quickly when they become available…
It is not only opposition websites that are reporting on shortages of basic goods in Turkmenistan. Uzbek television and Kyrgyzstan's AKIpress have reported about it, too.”
Kazakhstan's Ever-Shrinking Political Arena – Catherine Putz for The Diplomat
“Whether Kazakhstan has an early presidential election or not, it seems wildly unlikely for anyone outside of Nazarbayev’s orbit to make a real run at the office. New parties and associates of old foes alike have been unable to find traction that escapes the pressure of the authorities.”
Russia and Asia
Moscow remains Hanoi’s reliable ally — Vietnamese defense official – TASS
“Moscow has been and remains Hanoi’s reliable ally, Vietnamese Deputy Defense Minister Senior Lieutenant General Nguyen Chi Vinh said at a meeting with Russian Defense Minister Army General Sergei Shoigu on Monday.
"We understand very well that Russia has been and will remain a close and reliable friend of Vietnam," he said. "Our goal is to take defense cooperation between our countries to a new level," the Vietnamese deputy defense minister added.
According to Nguyen Chi Vinh, he has come to Moscow "to express determination to specify previously made decisions to boost defense cooperation between Vietnam and Russia." The General also said that the regional and global situation was "very unstable."
In addition, he pointed out that in 2020, Vietnam would host the Association of Southeast Asian Nations (ASEAN) summit. He expressed hope that cooperation with Russia would help his country fulfill its duties as the event’s host in the best possible way.””
Comment: It’s no mystery which neighboring country Vietnam is referring to when it says the “regional” situation is “very unstable.” Vietnam is a major purchaser of Russian military equipment, which, like India, enables it to achieve certain asymmetrical deterrence against PRC aggression: if Russian-produced military kit was used by Vietnam or India in a hypothetical skirmish with PRC forces with enormous political sensitivities for China-Russia relations.
Vietnam’s hosting of the 2020 ASEAN summit is an indirect way of saying they’ll be chairing ASEAN in 2020, which is an indirect way of saying they will come under pressure from the PRC over territorial disputes.
Interesting for Russia to raise this so soon after the RIC (Russia-India-China) trilateral last week.
There are also unconfirmed reports in the media this week that the Indian Navy will operate at Cam Ranh Port in Vietnam.
India, Russia Conclude Indra 2018 Military Exercises – Ankit Panda for The Diplomat
“India and Russia have long conducted joint military exercises and New Delhi is a major importer of Russian arms. The exercise concluded ahead of the G-20 summit meeting in Bueno Aires, Argentina, where Russian President Vladimir Putin and Indian Prime Minister Narendra Modi met bilaterally, trilaterally with Chinese President Xi Jinping, as well as with the leaders of Brazil and South Africa in the BRICS framework.”
Russian Security Council secretary to hold consultations with Indian officials
“Patrushev maintains regular contacts with Indian colleagues in bilateral and multilateral formats. He met with [Indian National Security Advisor Ajit] Doval in January 2017 in Moscow. The sides discussed fight against terrorism, among other things. In November 2017, Patrushev met with India's Home Minister Rajnath Singh to discuss cooperation in cyber security and anti-terrorism efforts. The Russian Security Council secretary met with Doval again in September 2018 in Tehran, where the sides discussed cooperation between Russian and Indian defense ministries and law enforcement agencies.”
Comment: Extremely vague meeting on “inter-departmental consultations on security?” What’s this related to? Iran? China? Something else?
India interested in training its military in Russia – TASS
“India is interested in training its military at the Military Academy of the General Staff of the Russian Armed Forces, the Russian Defense Ministry informed on Thursday on the outcomes of the visit by India’s Chief of the Naval Staff Admiral Sunil Lanba.”
US Navy destroyer sails through waters claimed by Russia in Sea of Japan – ABC News
“It was the first time the U.S. has conducted such an operation through the bay since 1987, a U.S. Navy official told ABC News. "McCampbell sailed in the vicinity of Peter the Great Bay to challenge Russia's excessive maritime claims and uphold the rights, freedoms, and lawful uses of the sea enjoyed by the United States and other Nations," Navy Lt. Rachel McMarr, a Pacific Fleet spokesperson, said in a statement.”
Russian subs could surface in Gulf of Mexico and shock America, analyst cautions
“According to the Russian Defense Ministry, The USS Campbell did not come closer than 100 kilometers to Russia’s territorial waters. Its voyage was monitored by the Russian Pacific Fleet’s anti-submarine ship The Admiral Tributs and naval aviation.”
Comment: Why was an anti-submarine ship monitoring a destroyer? Seems to demonstrate the limitations of the Russian Navy’s surface fleet, particularly in Asia.
Japan must recognize WWII outcome to carry on peace treaty talks, says Lavrov – TASS
China, Russia, and Energy Markets
Putin plans to visit UAE and Saudi Arabia
Comment: Watch the emerging triumvirate of Putin, MBS, and MBZ closely. All three countries have similar political systems and economic interests; governments in all three countries appear to have interfered in the 2016 US Presidential election and worked to elect Donald Trump.
A contact in the energy industry alerted The Report that the UAE Embassy has been paying for advertising space in Mike Allen’s AM brief, Axios’ most widely read brief. One advertisement says: “A legacy of inclusion: Special Olympics World Games in Abu Dhabi.” The contact speculates that the UAE will be one of the “biggest losers” of the ongoing Mueller investigation and is attempting to buy some goodwill ahead of Mueller’s findings.
OPEC+ monitoring committee recommends oil production cut in first half of 2019 - TASS
Comment: Why is OPEC+ recommending an output cut amid mounting indications of a recession? Economic considerations are likely paramount, but the supply cut could affect EU parliamentary elections and give Macron more political headaches.
In the Middle East, Russia is back – Washington Post
Leaders of EAEU countries agree on formation of common oil and gas markets, says Putin – TASS
Kremlin explains Putin’s ‘hearty handshake’ with Saudi Arabia's prince – TASS
“"We seek to continue fostering bilateral Russian-Saudi relations," Peskov noted. "President Putin and the Crown Prince held a rather fruitful and substantive discussion on the sidelines of the summit." He recalled that at the talks the sides discussed cooperation in the framework of OPEC plus.”
Comment: Peskov [Putin’s spokesman] quoted twice as saying Putin and MbS have “good personal relations”
China launches two satellites for Saudi Arabia – People’s Daily
“For all the posturing, Russia cannot give Saudi Arabia the security guarantees that the US has provided for over 60 years. If the emerging consensus among US elites is that Saudi Arabia is no longer worth the effort then MBS has done more than anyone else to endanger its survival.”
Maduro announces signing of multi-billion dollar contracts with Russia -TASS
Comment: Can Russia afford to continue to spend billions of dollars propping up Maduro?
Russian-Venezuelan talks – The Kremlin
Putin: “We realise and know that the situation in Venezuela remains difficult. We support your efforts to achieve mutual understanding in the society as well as to settle relations with the opposition. Of course, we condemn any actions of clearly terrorist nature and any attempts to change the situation by force.”
China and Northeast Asia
Chinese president meets DPRK foreign minister – People’s Daily
“Chinese President Xi Jinping met with Foreign Minister Ri Yong Ho of the Democratic People's Republic of Korea (DPRK) in Beijing on Friday, calling for more efforts to advance the long-term, healthy and steady development of bilateral relations. Xi asked Ri to convey his cordial greetings to Kim Jong Un, chairman of the Workers' Party of Korea (WPK) and chairman of the State Affairs Commission of DPRK.
Xi pointed out that since the beginning of the year, the situation on the Korean Peninsula has taken on positive changes, as evidenced by the fact that the Korean Peninsula issue has come back to the right track of political settlement. He expressed the hope that the DPRK and the United States meet each other halfway, and accommodate legitimate concerns of the other side, so as to ensure continuous and positive progress in the peace talks over the peninsula issue.”
Comment: Beijing expects more US – DPRK tensions, particularly as Trump’s domestic difficulties mount.
“Security analysts said the flights were a demonstration of China’s worries about increased US military activity in the region if US-North Korea negotiations failed. Sending military planes over area allowed China to extend its surveillance and sent a message that it was watching and, if necessary, willing to act to protect its interests in the region, analysts said. The US has sent military assets, including nuclear-capable B-52 bombers, to the Sea of Japan, prompting criticism from Beijing and Pyongyang. The US has long said North Korea’s behaviour was justification for joint military exercises with South Korea. These were stepped down this year to encourage Pyongyang at the negotiation table but could be stepped up again if talks on denuclearisation fail.”
“The Japan Air Self-Defense Force (JASDF) scrambled fighter jets to intercept a People’s Liberation Army Navy Air Force (PLANAF) Shaanxi Y-9JB (GX-8) electronic warfare and surveillance plane crossing the Tsushima Strait, a channel connecting the Sea of Japan, the Yellow Sea, and the East China Sea on November 26, Japan’s Ministry of Defense (MoD) revealed last week. The PLANAF has been regularly dispatching its spy planes to the Sea of Japan and East China Sea at an approximate four-week interval since June…
According to the Japanese MoD, the JASDF intercepted a Russian military aircraft last month: Japanese fighters intercepted a Ilyushin Il-38 “Dolphin,” a maritime patrol aircraft and anti-submarine warfare aircraft designed in the Soviet Union, over the Sea of Japan on November 8. A previous intercept of two Russian Ilyushin Il-20 maritime reconnaissance and anti-submarine warfare planes took place on October 19.”
Comment: Appears that PRC claims to the Senkakus are as robust and aggressive as ever.
Interesting editorial from the People’s Daily celebrating their fifth national Constitution Day, and their first Constitution Week. China’s current Constitution was adopted on December 4th, 1982.
Chinese citizens also received this automated text message (or a version of it):
“12月4日是国家宪法日。中国人民共和国实行依法治国，建设社会主义法治国家。任何公民享有宪法和法律规定的权利，同时必须履行宪法和法律规定的义务。树立宪法至上、法律面前人人平等的法治理念，尊崇宪法，学习宪法，遵守宪法，维护宪法，运用宪法。”
“December 4th is national Constitution Day. The People's Republic of China implements the rule of law, and has built a socialist country ruled by the law. Any citizen enjoys the rights stipulated by the Constitution and the law, and at the same time must fulfill the duties stipulated by the Constitution and the law. Establishing the rule by law concepts of constitutional supremacy and equality before the law, revere the Constitution, study the Constitution, abide by the Constitution, uphold the Constitution and apply the Constitution.”
Three retired generals arrested on the same day? – Epoch Times
Unconfirmed by official Party media, but a number of overseas Chinese media outlets (including the not very reliable Epoch Times) have jumped on a story indicating the supposed fall of three more tigers.
“北京当局在11月29日抓了三名退役上将，他们是海军前司令吴胜利、南京军区前司令蔡英挺、军委装备发展部前政委王洪尧。”
“On November 29th, Beijing authorities arrested three retired generals. The former admiral of the PLA Navy Wu Shengli, the former commander of the Nanjing Military Region Cai Yingting, and the former political commissar of the Central Military Commission’s (CMC) Equipment Development Department Wang Hongyu.”
Comment: If true, this would be another huge development for Xi’s anti-corruption campaign.
Bail hearings for Huawei CFO – The Star
This is a great breakdown of last Friday’s bail hearing in Vancouver for Meng Wanzhou, one that will continue on Monday.
“A warrant from the Eastern District of New York alleges Meng knew Huawei was operating a company called SkyCom to do business with Iran, which has been subject to U.S. sanctions since 1979. The U.S. authorities allege Meng committed fraud by telling an HSBC executive her company was in compliance with U.S. sanctions against Iran limiting communication technology.”
This case has revealed many interesting personal details about Meng and her role at Huawei. If you’re not following Joanna Chiu (@joannachiu) and Michael Mui (@Mui24hours) from StarMetro Vancouver on Twitter, you might want to change that. I highly encourage you to check out their play-by-play live tweets from the trial if you don’t want to miss anything.
China demands immediate release of Huawei CFO: FM – People’s Daily
Comment: Meng Wanzhou’s decisions are highly curious. Meng apparently has family and two homes in Vancouver (where she was detained), but why did Meng fly to a country likely to extradite her to the United States? There are direct flights from Shanghai to Mexico City, Meng’s apparent destination. Was she oblivious to the risks of flying to Canada, blinded by arrogance, or did she travel with the intent of being arrested and extradited to the United States? Beijing may have some questions for Meng. On the other hand, China’s security apparatus presumably knew of Meng’s travel – did they underestimate the probability of extradition or, alternatively, fear to speak truth to a powerful family? There are many, many unanswered questions about this case.
How the US forced China to quit stealing using a Chinese spy – Wired
Comment: This isn’t the first time Canada has found itself caught between the US and China. Remember the Canadian English teachers Kevin and Julia Garratt who were accused of spying in China as retribution for Canada’s role in arresting Su Bin?
Russia
Medvedev blasts US, European countries for 'putting spoke in Russia’s wheel' - TASS
Comment: Medvedev has aged a lot in the past several months.
Putin: Leadership not in promising "manna from heaven" but in making crucial decisions - TASS
"Along with this, certainly, [we] must go to people and explain to them and talk straight with them, clarifying why this or that decision has been approved and why it is the best possible option for our country in our time," Putin said.
The president has pointed out that for many years United Russia has been demonstrating its worthiness and ability to make responsible decisions as well as to clarify those decisions to the public, "and then participate in elections and persuade a voter that the earlier approved decisions are correct and that the way, which we have outlined, is the only one."
Comment: More reforms may be in the works? Putin has largely ignored needed economic reforms for the better part of a decade. More reforms may indicate that Putin is pessimistic about the political sustainability of the status quo. Of course, any change in the status quo could prove politically difficult, as the pension reform demonstrates.
Factory demise symbolises rot at core of Russian economy - FT
Comment: GDP growth is at 1.7% this year on very strong oil prices… The article notes that real disposable incomes have fallen each year since 2014 and were down 11% from 2013 – 2017.
“Away from Moscow’s Michelin-starred restaurants, Bentley showrooms and glistening granite pavements, Russia’s regional industrial belt is struggling. Expected gross domestic product growth of about 1.7 per cent this year would be far worse without strong oil and gas revenues, suggesting other sectors of the economy are stagnant or in retreat…
As a result, while the official unemployment rate of 4.7 per cent is close to a historic low, cuts to real wages have been deep. Real disposable incomes have fallen each year since 2014 and were 11 per cent lower at the end of 2017 compared with four years earlier, according to official statistics.”
Russia eyes beefing up armed forces amid US plans to quit INF, says defense chief
Comment: There are probably some in Russia who would prefer the INF to lapse in order to secure more military funding, drive a wedge between US and Europe, enhance deterrence in the east, or some combination of the above.
Around the Sectors: Alex Nice for Bear Market Brief
“Alongside the three-year budget, which passed its third reading in the Duma on November 21, this year the Ministry of Finance has also prepared a much longer-term budget forecast up to 2036. These forecasts are produced every six years and provide an insight into the assumptions and risks shaping thinking in the Finance Ministry.
Unsurprisingly, the biggest risk will remain volatile oil prices. Currently, a $10 fall in oil prices cuts tax revenue by 1.5% of GDP (or about 8.4% of federal income). The Finance Ministry believes the jump in oil prices over 2017-18 is an aberration, pointing out that the median real oil price since 1970 is $51/barrel, and “at the present moment there is no convincing theory for high oil prices.” On the contrary, the Ministry of Finance sees global growth slowing over the next decade, from 3.3% in 2019-24 to 2-2.5% thereafter. Demand will also be dampened by increased energy efficiency and a shift to renewables. The government has achieved a remarkable fiscal adjustment over the last five years – the primary budget now balances at an oil price of $57.3/b, compared with $100-120/b in 2013-14. The long-term forecast suggests the Finance Ministry would like to reduce this break-even point further over the coming decade.”
Nick Trickett for Bear Market Brief
“The story that oil markets do not appear to have factored in yet comes from the US. Washington is deploying an aircraft carrier strike group to the Gulf to make a show of force against Iran. The move is an explicit escalation that threatens military consequences: if Tehran refuses to stop testing ballistic missiles or to meet other US demands, the threat loses credibility unless the US strikes.
Since the market first prepared for the loss of more Iranian production only to see waivers issued, this scenario would likely add a considerable risk premium to prices. Russian firms and Russia’s budget would benefit in the short term, particularly Rosneft with its control of Kurdistan’s export pipeline. But Moscow will be sweating this in the coming weeks. Watch Putin and Novak’s public statements as well as any press releases concerning Nikolai Patrushev closely.”
Thank you for reading. Until next week.
v/r,
Joe Webster
This newsletter was put together with assistance from James DeMarshall.
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, and op-eds represent only the personal opinion of the author(s) and do not necessarily represent the position(s) of China-Russia Report.