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Analysis: How strong is the Russian-Chinese alliance?

Analysis: How strong is the Russian-Chinese alliance?

Russian-Chinese relations have been characterised by increasing intensity of activities at all levels. However, Russia’s recent turn to the east has not forced China to turn away from the West in quite the same way. For China, Russia remains a minor partner, whose interests China does not intend to take into account.

In search of a new ally

After the spring of 2014, Washington, together with its European allies, announced the first round of economic sanctions against Moscow.

Since then, Russia has been forced to pivot towards the East and more recently, Africa. Moscow, as a result, has remembered its mighty Eastern neighbour, China, which at the beginning of the current decade, firmly secured its position as the world’s second-largest economy. Now Moscow aims to compensate for its losses by building up its relationship with the People’s Republic.

In the Russian media, the topic of Russian-Chinese cooperation has come to the fore, and the exchange of delegations and negotiations between the two countries have intensified.

Bitter statistics

Between 2013-2017 Russia’s total trade with the world declined from $863.1 billion to $591.7 billion, or by 31.4 percent. China’s share in Russia’s foreign trade over the same period increased from 10.3 percent to 14.7 percent. As a result, China has become Russia’s top trading power, squeezing out Germany, whose position weakened as it joined anti-Russian sanctions.

A number of factors hinder the further development of trade between the two countries. Imports from China to Russia steadily exceed Russian exports to China.

In 2016, Russian commodity exports amounted to $28 billion, and Chinese imports to $38.1 billion. The negative balance for Russia was $10.1 billion, and it wasn’t much better in previous years.

Bilateral trade is hampered by Russia’s weak export potential. Russia mainly exports oil and coal and some raw materials to China.

Another problem is smuggling, which is flourishing. It is widely known that Russia restricts nickel, copper and forestry exports to China. At the same time, only the official data from Chinese customs show that in the first half of 2017, Russia supplied nickel for $489 million, copper for $120 million to China and it is even harder to come by the numbers for forestry exports.

According to some sources, the smuggling trade is controlled almost exclusively by the Chinese. It is impossible to estimate it even indirectly since the goods are not registered by either Chinese or Russian customs but move along secret ‘corridors’.

Investments

According to the Central Bank of Russia, direct foreign investments from Russia to China are practically non-existent. As for direct Chinese investments in Russia, their accumulated volume is ridiculously small.

In the first half of 2018, Chinese investors took one billion dollars from the real estate sector of the Russian economy, and their total investment fell to $3.18 billion. Considering that the total volume of accumulated foreign direct investment in Russia in the middle of 2018 was $526.1 billion, it turns out that China’s share was only 0.6 percent.

This is about the same as the United States’ investments in the Russian economy. Whereas the United States has declared an economic war with Russia; Russia regards China almost as one of its closes allies in its confrontation with America.

Mutual currency deal cancelled

The Chinese currency, the yuan, and the Russian ruble have a very limited range of uses. It’s extremely difficult for Russian companies with yuan to make serious investments in China, as there are quite serious restrictions for foreigners. And Russian legal entities and individuals in China are perceived as foreigners like the French or Americans.

Secondly, currencies are valuable when they appreciate, whereas, for the Russian ruble and the Chinese yuan, an almost permanent weakening of the exchange rate is characteristic – for the ruble it is also difficult to predict.

Towards the end of 2018, China refused to sign an intergovernmental agreement with Russia on settlements in national currencies (one that has been prepared since 2014).

The truth is that for China, Russia is not a strategic partner. Despite the deterioration of US-China relations, only the US remains a strategic partner for Beijing. All of Beijing’s attention is focused on Washington, while Moscow may only be interesting in terms of the possession of vast territories that the Chinese lack.

Washington has warned that third countries that violate sanctions against Russia may themselves become subject to secondary sanctions. Beijing has so far been unwilling to be dragged into secondary sanctions for Russia.

The Shanghai Cooperation Organisation

On the political front, Russia and China, along with some Central Asian countries, are members of the Shanghai Cooperation Organisation (SCO).

Despite the tactical similarities between the countries within the framework of the SCO, especially in the Central Asian region, relations lack a strategic footing.

In addition, since Russia maintains fairly close ties with Central Asian countries within the framework of the Eurasian Economic Community and the Collective Security Treaty Organization, for Russia these groups are more important than the SCO. For China, the SCO is the only secure cooperation structure for developing a leading role in the region, as well as a strategic space in Central Asia for ensuring energy security.

Within the framework of cooperation and development priorities in the SCO, there are certain differences between China and Russia.

Despite the fact that both China and Russia are facing a common threat from the United States, China does not intend to distance itself from the US and has never considered military cooperation within the organisation as a priority.

China will not agree to turn the SCO into an anti-American alliance, at least for now. China and the United States have close economic relations, the US is an important trading partner for China. At present, China’s trade turnover with Russia amounts to $95 billion, which is 2.14 percent of China’s foreign trade turnover.

According to Chinese customs data, the trade turnover of China and the USA in 2014 reached 521 billion, and with EU countries it was $600 billion. Given the high volume of trade relations with the US and the EU, China has little interest in creating alliances against its major trading partners. At least not for now.