Russia’s turn to China: A gap between rhetoric and reality

By Julia Smirnova 
September 6 2015

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Russian President Vladimir Putin, center, and Chinese President Xi Jinping, right, observe a parade commemorating the 70th anniversary of Japan's World War II defeat from Tiananmen Gate in Beijing on Sept. 3, as South Korean President Park Geun-hye, seated at left, looks on. (Ng Han Guan/AP)

Vladimir Putin and Xi Jinping share a love of military parades.

Both Russian and Chinese presidents appreciate the symbolic meaning of tanks and missiles rolling and soldiers marching through squares, showing their domestic and international audience that they are fully in control and their countries are superpowers.

On Thursday, Putin visited Beijing to celebrate with Xi Japan’s defeat in World War II. He watched Russian soldiers marching together with Chinese, and Russia also staged its own parade – on a much smaller scale – on the same day in the far eastern city of Yuzhno-Sakhalinsk.

Putin’s visit to Beijing is also symbolic as part of Russia’s declared pivot to Asia after its conflict with the West over Ukraine and Western sanctions. The sanctions “encourage our domestic business to develop stable business ties with China," Putin said in an interview with Russian and Chinese state news agencies before the visit. “Russian-Chinese ties have now probably reached a peak in their entire history and continue developing.”

Putin brought several dozen officials and businesspeople to Beijing who signed contracts with Chinese companies. The head of the state-owned oil giant Rosneft, Igor Sechin, said his company signed contracts with China worth $30 billion. It included an agreement on joint development of two oil fields together with the China Petrochemical Corp. (Sinopec). Sinopec also agreed on buying a minor share in the Russian petrochemical company Sibur.

Russia is looking for new allies — political and economical — outside of Western countries. China has been treated as its most important strategic partner for more than a year, in hopes that Chinese investments and imports of Russian commodities would help the Russian economy survive under sanctions.

"Moscow had excessive expectations," Alexander Gabuyev, a Russian expert on China from Carnegie Moscow Center, told The Washington Post. "They thought that the Chinese investors would come and flood Russia with money." The economic data show, however, that these hopes didn't play out.

In fact, the bilateral trade volume between the two countries went down by 31.4 percent in the first half of 2015 due to the falling oil prices, the overall economic downturn in Russia and the dropping Chinese demand for commodities. Chinese investments in Russia dropped by 20 percent during the same time, according to Gabuyev. Considering China’s slowdown, the outlook is not rosy. Depending too much on exports to China can put an economy at risk, as Brazil's example shows.

Last May, China and Russia signed a deal for gas from East Siberia to be shipped to China starting in 2019. According to Russian authorities, the deal was worth $400 billion, but the price was linked to the oil price, which dropped significantly since May 2014. The pipeline for these gas supplies is yet to be finished, but Russia didn't agree with China on advance payments it hoped for to finance its construction.

In November 2014, Russia and China signed a memorandum for a second deal for gas from western Siberia. The contract was supposed to be signed during Putin's visit in Beijing, but it didn't happen. "It is not a favorable environment to sign off another gas deal" for China, Keun-Wook Paik, a senior research fellow at the Oxford Institute for Energy Studies in London,told Bloomberg in August.

Western sanctions are another factor causing problems for Russian-Chinese cooperation. Apart from slowing down the Russian economy, they make Chinese investors cautious.

But even if Chinese interest in investing isn't as overwhelming as Moscow had hoped, it still exists for some infrastructure projects. Russia and China agreed on building a high-speed rail line from Moscow to Kazan in June, for instance.

After the Beijing visit, Putin headed off to the Eastern Economic Forum in Vladivostok, where Russian authorities and companies are trying to attract Asian investors to its far eastern regions. Until now, China hasn't been investing much in this sparsely populated part of Russia. In Primorsky Kray, where Vladivostok is the capital city, China invested only $31 million in 2013, less than Japan or Germany.

Several Russian media outlets reported on the chaos during the first days of the forum, with transportation problems and participants and media waiting for their lost accreditation badges. China sent Deputy Prime Minister Wang Yang, but major Asian investors are rare guests in Vladivostok.

Gabuyev had bought a ticket to Vladivostok, but sold it after talking to his Asian contacts, who wrote to him that they were not planning to attend, and explained the reasons. "It's an event where Russian officials would talk to other Russian officials," he said. "I don't need to go to Vladivostok to talk to them."