September 5, 2017 10:04 pm JST
Jonathan Hillman

Putin's Vladivostok forum a reality check for China-Russia ties

Lofty ambitions of a strategic partnership are undermined by self-interests

One of the world's most sparsely populated regions is hosting world leaders this week, when Russian President Vladimir Putin kicks off the Eastern Economic Forum in Vladivostok on Sept. 6. In the coming days, Russian officials are expected to announce investments and make grand statements about a "Greater Eurasian partnership." But in the Russian Far East, these ambitions are running up against hard economic realities.

Nowhere is the gap between official rhetoric and ground truth greater than in Russia's economic relations with China. Both Putin and Chinese President Xi Jinping have been promoting the notion of a strategic partnership between their countries. When Putin awarded Xi with Russia's highest order in July, he trumpeted "the development of comprehensive partnership and strategic cooperation." Echoing those sentiments, Xi said that China and Russia are each other's "most trustworthy strategic partners" and that relations are "at their best time in history."

Central to Putin and Xi's partnership rhetoric is a promise to "link" their economic visions. Xi's Belt and Road Initiative aims to connect some 65 countries across Eurasia and beyond with trillions of dollars in infrastructure investment, scores of trade deals, and countless people-to-people ties. Putin's Eurasian Economic Union aims to integrate Russia and four former Soviet States in a single market for goods, services, capital and labor. In July, Russia and China launched a feasibility study to "inject new strength for the comprehensive strategic partnership of the two countries."

At first glance, these visions might appear complementary. The BRI puts a greater emphasis on hard infrastructure, and one of China's primary motivations is exporting its excess construction capacity. The Eurasian union puts a greater emphasis on "soft" infrastructure -- the rules and regulations that govern movement and commerce. There is no doubt that Asia, and particularly Central Asia, where China and Russia's visions overlap, could use upgrades in both areas. Moreover, three of the BRI's six proposed corridors run through the Eurasian union.

But fundamental challenges will constrain cooperation, and incremental improvements are more likely than deep linkages. China's sheer size, in economic and demographic terms, should dispel any illusions that this partnership is one of equals. Beyond raw materials and safe passage, Russia has little to offer. That's why most cooperation to date has been limited to the energy sector. Rhetoric about "linking" the BRI and Eurasian union mainly serves political objectives, but will struggle to produce concrete economic results.

Consider a few avenues for greater economic integration. First, Russia and China could link their visions through trade policy. The Eurasian union has already struck a trade deal with Vietnam, and it has negotiations underway with India, Singapore and others. Discussions with China began last year, but Eurasian union policymakers will be sensitive to limiting the impact of more Chinese exports on their domestic industries. Still, a modest China-Eurasian union trade deal could achieve some economic gains and add substance to the notion of a deeper partnership.

Obstacles to free trade

A considerably more ambitious approach would be establishing a free-trade area under the Shanghai Cooperation Organization. Both Russian and Chinese officials have mentioned the organization as a preferred structure for coordinating the Eurasian union and the BRI. But the union and members of the Shanghai group do not overlap neatly. The recent admission into the group of Pakistan and India, two countries with high tariffs and political tensions, makes a free-trade zone even more unlikely.

An even bolder move would be for China to join the Eurasian union. But it is essentially impossible to imagine decision makers on either side advocating for this level of integration. Moscow dominates the Eurasian union in economic and political terms, and admitting China would undercut that influence. Indeed, it would be more accurate to say that the Eurasian union would be joining China, which has a gross domestic product 10 times larger than the union and a population more than seven times bigger. For its part, China would have little to gain from binding itself to the Eurasian union's higher tariffs and rules.

Investment is another avenue for deeper integration. Yet economic disparities are constraining cooperation here as well. According to Russian government data, Chinese direct investment in Russia peaked in 2013, and Russian direct investment in China peaked in 2012. As is the case in other economic areas, there is also a large imbalance. At the beginning of 2015, China's foreign direct investment in Russia was nearly 10 times larger than Russia's in China. The two countries notched a minor victory before this year's G-20 Summit, when they announced a $10 billion fund for cross-border projects.

But these pledges, as well as those to be unveiled at this week's forum in Vladivostok, should be interpreted cautiously. Large project lists have been announced in the past with little follow-through. In 2009, then-Presidents Hu Jintao of China and Dmitri Medvedev of Russia released a list of 205 joint projects. But six years later, only 19 of those projects were still being pursued, according to the Russian government.

Transportation connections have been especially slow to materialize. A highway bridge linking Blagoveshchensk in Russia and Heihe in China is under construction and scheduled to open in October 2019. Construction started on the first Russia-China railway bridge, named the Amur River Bridge, linking Tongjiang in China with Nizhneleninskoye in Russia when commodity prices were higher. The project has been delayed multiple times. Construction on the Chinese side has outpaced the Russian side, providing a tempting metaphor for disparities between the two economies and uncertainties about the overall relationship.

Foreign investment limitations

Part of the problem is that past proposals are often repackaged as new offerings in the hope that foreign investors will see merit when domestic investors, including the government, did not. Corruption, particularly in Russia, is another challenge that has limited investment. In the other direction, China's restrictions on foreign investment have limited Russian investment. These dynamics contribute to the biggest challenge of all: a shortfall of bankable projects, opportunities that offer returns commensurate with their risks.

Migration concerns may also limit cooperation. The Russian Far East encompasses nearly a third of the country's land but barely 5% of its population. The threat of a Chinese immigration wave is likely exaggerated, but estimates suggest that Chinese residents in the region are increasing. Reflecting fears among some officials, Alexander Galushka, the head of the Ministry for the Development of the Russian Far East, earlier this year noted, "We are creating a new economy in the Far East for our people -- for Russian citizens."

Ultimately, the greatest barrier to linking the Eurasian union and the Belt and Road Initiative might be a similarity: Russia and China are unwilling to give up much control. Both visions aim to enhance a single state's influence, and both favor protecting their domestic industries. Above all, both governments prioritize self-preservation and domestic stability. Greater connectivity could bring more growth, but also more disruption and less control.

Despite these challenges, rhetoric about linking the BRI and the Eurasian union is likely to continue for political purposes. For Putin, part of the appeal is casting Russia and China as equals, despite their economic disparities. Xi benefits from Putin's endorsement of the BRI, which could help soften suspicions that the initiative is a tool for extending Chinese influence into Central Asia. Both leaders also advocate finding alternatives to Western-led globalization, and talk of their economic partnership fits well within that theme. But if Russia and China cannot deliver more concrete results, their rhetoric will increasingly ring hollow.

Jonathan Hillman is director of the Reconnecting Asia Project at the Center for Strategic and International Studies in Washington.

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