Reviews of Russia-China Relations

Igor Khalevinskiy

Following is the speech given by Mr. Igor Khalevinskiy at the Seminar on Big-Power Relations and New World Order organized by Charigo Center in Beijing on June 26, 2919.

Russia-China relations have recently been developing very intensively in a variety of areas and reached an unprecedented level. The two leaders continue to meet frequently not only at the bilateral level, but also at BRICS (South Africa) and SCO (Qingdao) summits, Eastern Economic Forum (Vladivostok) and the G20 forum (Argentina). Since 2013, when Xi Jinping was first elected President of the People’s Republic of China, our leaders have metal most 30 times, which is rather outstanding. This indicates very close cooperation of the two neighboring states and gives hope for its further successful development.

The years 2018 and 2019 were declared the Cross Years of Russian-Chinese Inter-regional Cooperation. Russia and China have already held a number of events at the regional level and have signed several documents on cooperation between Russian regions and Chinese provinces. If we look at various administrative levels, such as province, district and city, Russia and China today have around 363 partner ties.

China is Russia's largest trading partner, and Russia ranks 10th among China's trading partners: in 2018, trade turnover increased by 27.8% to almost $108 billion. More specifically, export from China grew by 12% to $43.5 billion, and import from Russia by 44.3% to $53.78 billion. In the near future, the turnover is expected to be brought to $200 billion.

Economic and trade cooperation between the two countries has expanded from simple trade relations to joint research, development and production; from cross-border trade to large strategic projects.

For example, at present, there are 70 investment cooperation projects in varying degrees of development worth $130 billion. One of the most promising areas of cooperation is energy. On January 1, 2018, the second line of the Russia-China oil pipeline began to function and, as a result, the throughput increased to 30 million tons per year.

Another joint project – “Yamal LNG” – is now being completed - it is one of the largest liquefied natural gas plants in the world. The Chinese side owns 30% of its capital. In summer 2018, tankers began to deliver LNG to China along the Northern Sea Route. By the end of 2019, it is planned to deliver 38 billion cubic meters of natural gas annually to China via the new gas pipeline (called the “Eastern route”) for the next 30 years.

Moreover, Russia and China are actively promoting cooperation in new areas, such as the development of the Russian Far East and the Arctic region, digital economy and cross-border e-commerce. For example, in 2018, the two countries signed a Memorandum of Understanding on Electronic Commerce Cooperation. This agreement provides further development of cross-border e-commerce, which is becoming a real point of growth in bilateral relations. The volume of e-commerce is close to $5 billion per year, and in September 2018, the Chinese corporation «Alibaba» announced cooperation with the Russian corporation «Mail.Ru» on the creation of a new joint venture «Ali-Express Russia» to expand its product range, promote Chinese products and raise consumer convenience.

What is also worth mentioning is the development of the Northern Sea Route as one of the transit routes of the Silk Road initiative.The interests of Russia and China go beyond a simple transport route. In modern conditions, the Arctic is acquiring a new strategic value, considering its geopolitical position, growing economic significance and substantial climatic impact on the Earth’s ecology.

The so-called Ice Silk Road is the shortest trade route for products from many regions of China. On average, it takes 25 days and 625 tons of fuel oil to go from China to Europe via the NSR, while the traditional route through the Suez Canal –35 days and 875 tons of fuel oil which is 40% more. In 2017, the refrigerated cargo ship called “Baltic Winter” left the Taicang port in China and reached the German port of Bremerhaven in just 6 days via the NSR. It’s quite an outstanding result!

For Russia, the NSR is also the shortest waterway from the northern regions of Russia to the Far East. In addition, 106 billion tons of oil and gas have been explored in the Russian part of the Arctic shelf, and there are also a tremendous amount of gold, rare-earth elements and other minerals explored and being developed in the mainland Arctic, without which modern technology is impossible.

It should also be noted that 90% of Chinese goods are delivered to Europe by sea, so the development of the Ice Silk Road promises China serious economic benefits - on average, accelerating cargo delivery by 15 days and saving up to $ 500,000 on each run. And in the future the NSR is assumed to accumulate up to 15% of China’s total international trade. More over, the development of trade in the NSR will contribute to the economic development of not only the northern polar regions of Russia, but also the northern regions of China, which will allow China to actively increase the share of gas in its energy consumption balance (up to 15%), use the biological resources of the North Pacific Ocean and the Arctic. Besides, active involvement in economic processes in the Arctic at the present stage is likely to play a significant role in the military-strategic balance in the region.

Cooperation between Russia and China in the military sphere also continues to grow. Russian-Chinese military ties are built on the basis of the Treaty of Good-Neighbor liness and Friendly Cooperation between the Russian Federation and the People's Republic of China of 2001. For more than 10 years, Russia and China have jointly participated in military maneuvers organized by the SCO. In September 2018, Beijing for the first time became a member of Russian exercises: 3,500 Chinese soldiers, 9,000 units of heavy artillery and 30 aircrafts and helicopters took part in the military exercise called «East».

Cooperation in the military-technical sphere develops as well. According to export estimates, military-technical cooperation between Russia and China is experiencing the most efficient period in its history. During this period, China has imported more than 100 aircrafts and helicopters,including the SU-27 fighter jets. In addition, the Russian side handed China the licenses to manufacture SU-27. China also received about 10 sets of the most advance technology for air defense, including the legendary S-300 and «Buk»anti-aircraft missile systems. As for the modernization of the naval forces,China was supplied with destroyer warships and Kilo-class submarines, called Black Holes for their ability to effectively disappear from enemy sensors.

Russia has recently begun to sell the most advanced weapons systems to China, since Moscow understands that thanks to huge investments in their own R&D, China in less than 10 years will practically stop needing Russian weapons. Therefore, Russian government uses today's opportunity of rather high demand knowing that in the near future it will sharply decline,and China will not be an importer of Russian weapons, but a full-fledged strategic partner.

No less important is the cooperation of Russia and China within the framework of the EAEU. On May 17, 2018 at the Astana Economic Forum the EAEU and China signed the Agreement on Trade and Economic Cooperation.

The panel discussion “How to create a single economic space in Eurasia?” focused on the expected effects of the Agreement, options for further development of cooperation, in particular the conjunction of the EAEU and the Belt and Road initiative. The parties also considered possible cooperation on projects that will combine technology, raw materials and capital of all countries of the EAEU and China.

Particular attention is paid to the development of transport infrastructure. For instance, Kazakhstan has significantly invested in transport systems and modernized roads: the “Western Europe - Western China” transit corridor section was completed 2 years ago. The Russian section of this corridor is now at its final stage.

Another area is the development of the EAEU railway infrastructure. Belarus, Russia and Kazakhstan are actively cooperating in this project.

Such countries as Armenia have traditionally for centuries been part of the Silk Road. Currently, roads are also being built on the territory of Armenia within the framework of the North-South EAEU project that is connected with the mega “Belt and Road” project.

Belarus is also actively supporting various integration projects and planning to occupy a special place in the so-called Integration of Integrations project between the EU, the EAEU and China. The foundation for this is the creation of an efficient East-West transport and logistics corridor. Another ambitious project namely the Belarusian-Chinese industrial park, a global hub with elements of digitalization of intersecting transport corridors, has already been launched within the framework of the Silk Road initiative.

As for the effect of signing the mentioned above agreement for Russia, it is even more significant and important, since Russia and China are leading trade and industry partners. The agreement creates useful cooperation mechanisms in various areas of government regulation providing form aximum consideration of the interests of both the entire Union and each country in particular, as well as the interests of business. Another important practical part of the implementation of this Agreement is control at the national and supranational levels over technical regulation issues, phytosanitary requirements and customs interaction. It should be stressed that very few integration structures in the world have such diversified coordination mechanisms as the EAEU and China currently have. Considering destabilization and protectionism processes taking place in world trade, cooperation between China and the EAEU within the framework of the Silk Road initiative is without a doubt a key area of cooperation. It will not only simplify trade procedures,but can also contribute to the economic growth of all the countries involved and major improvement of living standards.

The trade turnover between the EAEU countries and China in 2018 amounted to more than $140 billion. Exports from the EAEU to China increased by 40%, with the export structure including not only raw materials, but also engineering industry products.

China is the second most important economic partner ofthe EAEU – however, with the share of 13% of total trade it is still significantly inferior to the EU (with 48.9%). China is also a strategic partner of the EAEU. The structure of imports from China was shaped in the 90s, and the most interesting goods for consumers from the EAEU at the moment are as follows: electronics, home appliances and light industry goods. In recent years, imports have diversified with industrial machinery, equipment and cars.

China continues to increase its economic presence in the EAEU countries also through direct investment. Chinese FDI in five countries reached $25.7 billion in 2016. The main recipients of Chinese investments are Russia and Kazakhstan. Kazakhstan has attracted $21 billion, Russia – 8,2; Kyrgyzstan - 0.9; Belarus - 0.4; Armenia - 0.001 billion $. The bulk of direct capital investments originating from China are currently concentrated in TNCs of Kazakhstan and Russia, mainly in the sphere of transportation of natural resources. A significant part of major contracts and transactions, framed in recent years, is still awaiting implementation. Experts predict a significant growth of Chinese FDI in Russia and other EAEU member states in the near future as investors continue to display keen interest in many sectors of Eurasian economies.

An equally important area of cooperation between the EAEU and China is the development of electronic commerce, a crucial part of the digital economy.

The fundamental document for cooperation in this area is the Agreement on the exchange of information on goods and international transport vehicles crossing customs borders of the EAEU and China.

The implementation of the agreement will be carried out in several stages. At the first stage, the customs services will exchange information exclusively on certain groups of goods exported from the countries of the Union to China and vice versa, as well as on the vehicles carrying these goods. At subsequent stages, the exchange of information on a wide range of goods including goods and vehicles sold to third countries is planned to expand.

China is the second country with which the EAEU will begin to exchange customs information. Earlier, the Union agreed on a similar in formation exchange with the Socialist Republic of Vietnam within the framework of the Free Trade Agreement.

On the whole, Russian-Chinese relations are defined as relations of comprehensive cooperation and strategic partnership. There is no reason to believe that something would impede the intensive development of these relations in a variety of areas, since the core element of it is coincidence of state and national interests of the two countries.

Igor Khalevinskiy: Chairman of Board of the Association of Russian Diplomats; Co-Chairman, General Council, Eurasian Peoples Assembly; former member of Committee of experts on public administration (CEPA), ECOSOC, United Nations.