A new, Eurasian, world order

China and Russia are at the heart of the world's shifting power-balance. But current cooperation between them is likely to give way to tension.

Ernesto Gallo Giovanni Biava
29 July 2014

The evolving relationship between China and Russia is a strong indication of wider changes in the world's economy and geopolitics. Consider two recent events. After much talking and speculation, China and Russia finally signed a long-term gas-trading "mega-deal" in Beijing on 21 May 2014. The agreement is valid for thirty years and estimated to be worth some $400 billion. As yet, though, there are no official figures on the price of Russian gas exported to China. Then, on 29 May, Russia along with two of its regional allies, Kazakhstan and Belarus, founded the Eurasian Economic Union (EEU) in Astana, Kazakhstan's capital.

These initiatives give a fresh boost to the familiar question of whether a "new world order", both political and economic, is in the making - and whether China and Russia will "rule" it together, at least in Eurasia. In the shorter term, with China and Russia cooperating on many issues, this seems possible. In the long term, though, the two countries risk finding themselves at loggerheads. This emerges from a closer look at three aspects of their relationship. 

Energy and rivalry

The first is energy, which is of course at the heart of that gas deal. Russia's own Energy Strategy 2030 makes clear that Moscow is increasingly looking east, and aims at developing gas-and-oil fields in regions such as Siberia, the Arctic, and its far east. China for its part needs resources and transit ("new silk roads") to the Middle East and eastern Europe; it is already the major trading partner of Kazakhstan, Kyrgyzstan, and Turkmenistan, and has invested massively in the whole of central Asia, especially in the energy sector.

At the same time, Saudi Arabia is China’s top petroleum supplier, and the Gulf countries trade huge quantities of fuel with Beijing. Since the sea-transport routes from the Gulf to China must pass strategically sensitive choke-points (the Straits of Hormuz and Malacca),  the importance of land connections via central Asia is increasing. This is where a clash with Russia becomes possible, and in the longer term even likely. Russia, after all, with some reason tends to consider central Asia part of its "near abroad".

Remittances from Russia account for almost half of Kyrgyzstan and Tajikistan’s economies. The two countries host Russian military bases and its Baikonur cosmodrome, and a quarter of Kazakhstan's population are Russian native speakers. There are also significant Russian minorities in resource-rich Uzbekistan and Turkmenistan. Moreover, Russia remains popular in central Asia, something not always the case with China. A Gallup survey published in 2011 found that Russia’s regional leadership would be approved by 94% in Tajikistan, 84% in Kyrgyzstan, 81% in Uzbekistan, and 73% in Kazakhstan. Thus, Russia has a strong presence in the region and will hardly concede any leadership role, political or economic, to China.

Finance and politics

The second aspect is finance. China’s slow but steadfast reforms has pushed the yuan to become the second most used currency in global trade and (in October 2013) the ninth most traded. Russia is financially weaker; even in the EEU, Almaty could become one of the new body's financial capitals. At the moment, Russia needs Beijing’s financial stability and might, and the two countries are working towards the establishment of a common credit-ratings agency, as well as a BRICS development bank.

In the longer term, however, Russia - most recently put under a further level of sanctions by the European Union following the shooting down of the MH-17 airliner - risks finding itself squeezed between the west and a large east Asian capital market, embodied in an Asia-Pacific superbourse which is the likely outcome of stock-exchange mergers in the region. When China’s financial markets are more open and developed, their potential to give shape to an east Asian equivalent of Wall Street will fully unfold. This would be a problem for Moscow, which would remain marginalised.

Security and economics

The third aspect of the Russia-China relationship is security. Here too central Asia is at the heart. Moscow controls the region in direct and indirect ways (for instance, its intelligence services), while China has taken the lead in terms of trade and investments. This looks like a fair division of labour, but the balance could change if, for example, Chinese investments were threatened. In that case, China might be tempted to intervene. 

China and Russia also meet in the Shanghai Cooperation Organisation (SCO), which inter alia targets extremism, separatism, and fundamentalism. After the Eurasian Economic Union is fully established in January 2015, however - and probably enlarged to new countries - the SCO's future is less clear. The EEA's own role as an economic union may change.

The EEU began in 2010 as a customs union, but has already been transformed. There is a Eurasian Commission, headed by Viktor Kristenko, a Eurasian Development Bank, and even rumours about a Eurasian currency (the so-called alting). Thus, the EEU reproduces the form of the European Union’s institutions, though in an authoritarian way (and ironic, since it began as an alternative to the EU).

Today, the EEU is becoming an instrument to compete globally and contain rising superpowers like China itself. Russia, in demographic and economic terms, risks being dwarfed by its giant to the southeast. It can regain global status only by joining forces with neighbouring countries, which at some point will have to choose between Russia and China. Kyrgyzstan and Tajikistan, for instance, seem inclined to join the EEU, but the consequences of common tariffs on these still weak and poor states - which depend on remittances from Russia and goods from China - may be severe.

Yet more states - perhaps Turkey, Vietnam or even India - might yet consider associating with Vladimir Putin’s (and Kazakh president Nursultan Nazarbayev’s) brainchild. Vietnam, experiencing renewed tensions with China, might prefer political closeness to Russia. The Kremlin’s diplomacy has been active and consistent; in his visit to south America in May 2014, foreign minister Sergey Lavrov enlisted Argentina to join the sixth BRICS summit, held on 15 July in Fortaleza, Brazil. A "Eurasian Russia" seeks to become a truly global player.

In search of balance

China and Russia have many and good reasons to cooperate, but in the long term their relations might become strained, particularly if the overall economic gap keeps widening in China’s favour. A possible long-term source of trouble is the way the two countries interpret their foreign policies. China tends to emphasise trade and economic growth; Russia is keener on security and maintaining a sphere under its authority in most parts of the former Soviet Union (whose disintegration was dubbed by Putin "a geopolitical catastrophe"). This diversity might be seen as a result of different historical trajectories - Beijing's momentous economic rise, Moscow's humiliation (in the 1990s) vis-à-vis the west. These differences could also put the countries at odds. 

Will other states be able to step in and play a balancing role? Since Narendra Modi’s election, India is perceived as more assertive and has already made friendly moves towards both Moscow and Beijing. Iran might reap some benefit as well. The United States is coming to terms with its own errors in the "greater Middle East" and will probably stay out for some time, apart from Barack Obama's rhetoric of the "Asia pivot’. The European Union looks more uncertain and divided than ever, and still looking for a new foreign-policy chief. Welcome to the new, and uncertain, world order.

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