Alena Kazakova & Mikhail Katkov
Western markets are closing, and Moscow is reorienting itself to the East. Russia, according to Sergey Lavrov, will develop cooperation with China, the SCO, BRICS and the EAEU. In the first two organizations, Beijing plays a key role, and for the third it is important. However, there are many hidden risks – from the degradation of the domestic industry to the surge of interethnic conflicts and the loss of leadership in the post-Soviet space.
Pairing in one way
The reorientation of the economy from West to East, or from the European Union to China, has been carried out for a long time and consistently. For example, at the end of 2021, the trade turnover between Russia and China reached almost 147 billion dollars – Beijing has become Mosc-ow’s main trading partner. True, the same figure for China and the United States amounted to more than 755 billion dollars.
In early February, Vladimir Putin met with Xi Jinping. We agreed to intensify the integration of the EAEU development plans and the Chinese One Belt, One Road initiative. At the same time, the parties opposed the policy of protectionism and emphasized the central role of the WTO in international trade. Western sanctions due to the special operation in Ukraine only increased the urgency of rapprochement with Beijing.
According to China’s plan, the new Silk Road should run all over the world – both by water and by land. And the main advantage of the economic union of Russia, Belarus, Armenia, Kazakhstan and Kyrgyzstan is the absence of customs borders. The conjugation of the two projects is often referred to as the formation of a “greater Eurasian space.”
The EAEU is important for China because of the openness of markets – up to the European Union and the Middle East. True, at the same time it is necessary to invest in local infrastructure: build roads, warehouses, modernize the energy system. And China is attractive primarily for its investments. For example, the political elite of Kyrgyzstan has been dreaming for 30 years about a railway line that will connect the republic with China. In 2020, the project was estimated at $4.5 billion.
However, the key trading partner not only of the EAEU countries, but also of most of the republics of the post-Soviet space is Russia. For comparison: last year in Uzbekistan there were 2,329 enterprises with Russian capital and 1,943 with Chinese capital. According to the European Bank for Reconstruction and Development (EBRD), remittances from Russia to Kyrgyzstan account for 31 percent of the republic’s GDP, to Tajikistan – 26.7 percent, and to Uzbekistan – 11.4 percent.
Pairing has been discussed for more than one year, but it has not come to implementation. China’s economy is the second in terms of nominal GDP, which is incomparable in scale with the Eurasian Economic Union. Even before the European sanctions, Russia was ranked eleventh in this rating, and Kazakhstan was fifty-second. Such an alliance can lead to unpredictable consequences. Back in the su-mmer of 2021, the Eurasian Economic Commission (EEC) analyzed the risks.
One of the significant threats is that the market will be filled with cheap Chinese products, which will lead to structural and technological degradation of industries. Rapproch-ement can crush small and medium-sized businesses. The Way projects will worsen the ecological situation. The dependence of the countries of the economic union on the PRC will increase, Russia’s political weight in the Eurasian region will decrease, and the Chinese diaspora in the republics will grow.
For example, in Kazakhstan, anti-Chinese protests regularly flare up – residents fear for jobs. According to analysts at the international research center Aid Data, Nur-Sultan’s “hidden” debt to Beijing reaches ten percent of GDP. But most of all Kazakhs are frightened by the ecological situation in the People’s Republic of China – since they allowed this in their country, what can they do with Kazakhstan.
The same potential problems worry the citizens of Kyrgyzstan. In December 2019, farmers lost a lot of livestock. They decided that the Chinese company Zhong Ji Mining, which is developing a gold deposit near the incident, poisoned the water. The analyzes did not confirm the hypothesis, but this did not lead to an improvement in the already difficult relations between the Chinese and the Kyrgyz. And in March 2018, about a hundred people went to rallies demanding that the gold mining company JL Makmal Development be stopped due to environmental imp-act. As a result, the protests turned into a fight, three policemen were injured.
With the EAEU states bordering China, Beijing works directly. For example, Kazakhstan is investing in the oil and gas, construction and mining industries. China has so far occupied the second place in terms of total trade turnover with Kazakhstan – about 18 percent. Scrap ferrous and non-ferrous metals go from Kyrgyzstan to China, and consumer goods and foodstuffs go in the opposite direction. Before the pandemic, China’s share in the country’s trade turnover was 30 percent.
Beijing only counts on profit
The main problem that Russia faced after the imposition of sanctions was the cessation of deliveries of high-tech equipment, recalls Sergey Lukonin, head of the sector of economics and politics of China, IMEMO RAS. And there is a danger that Russian business, instead of import substitution, will purchase the missing equipment in China.
“In this case, Russia will exchange the awl for soap, with the difference that the soap will be a little more expensive and a little worse quality,” Lukonin warns. “But there is no choice yet. Later, individual businessmen will probably find a loophole to provide themselves with other technologies, but it is unlikely that a mass supply channel will form.”
At the same time, according to the expert, in six months or a year, China will in any case seriously strengthen its position in the Russian high-tech market. In the meantime, Beijing is afraid to make sudden moves in the direction of Russia because of the risk of falling under international sanctions, not to mention the possible damage to Sino-American trade.
“It is necessary to develop not temporary cooperation schemes, but strategic mechanisms to avoid repe-ated sanctions. The simple creation of shell companies looks like work on the knee,” Lukonin argues. from Russia, a profit that will pay off his risks.”
The Eurasian Union should not be forgotten in the new conditions either. On the contrary, it is worth operating in a dialogue with American and European companies. The stronger the EAEU, the stronger the negotiating position of Moscow as its leader.
Stanislav Pritchin, senior researcher at the Center for Post-Soviet Studies at IMEMO RAS, notes that under the current conditions, any risks posed by China are a lesser evil compared to Western pressure on Moscow. In addition, in the near future you should not expect any serious progress in the matter of pairing.
“At this stage, we are talking about a kind of gentlemen’s agreement – the projects do not contradict each other and do not compete. The Way is a set of investment schemes in the field of trade, and the EAEU is aimed at creating a common space for the movement of people, capital, goods and services,” explains Pritchin: “But now the question of the format in which Russia, the countries of Central Asia and China will interact in the future will arise sharply. Much will depend on what Beijing is ready to do.”
At the same time, Pritchin considers fears for local production to be irrelevant: “We passed this stage in the 2000s. A lot of Chinese goods went through Kyrgyzstan then. “Wherever possible, governments try to support their producers through tariffs.”
As an example, the expert cites Uzbekistan, which in 2021 tightened its customs policy and fenced off Chinese goods. As a result, Russia became a trade leader for Tashkent. In addition, “One Belt, One Road” does not imply a deep ideological reformatting of the region.
However, economically, this project is very important, emphasizes Sergey Rekeda, Associate Professor of the Basic Department of Eurasian Economic Integration at the IPiNB RANEPA under the President of the Russian Federation. “But they don’t plan to allow Chinese manufacturers to participate in public procurement,” he emphasizes. “And rightly so, because this market is open only to the EAEU. But the involvement of large Chinese companies in infrastructure projects is good, there is no threat here. Besides, I don’t think that the PRC will firmly push through its interests in conditions when the western direction is actually blocked.”
Rekeda is confident that China is interested in pairing, despite the sanctions that Western countries have imposed on Russia. The project was conceived for faster and cheaper access of Chinese products to European markets. And Beijing has always been guided by pragmatism.