A tale of two na­tions

Financial Mirror (Cyprus) - - FRONT PAGE -

Rus­sia is fac­ing its most se­vere stand­off with the Western pow­ers since the Cold War. It is iso­lated over Ukraine, suf­fer­ing from the re­sul­tant six months of sanc­tions im­posed by the US and the EU. Moscow’s an­swer? To turn East to China.

Over the past decade, the re­la­tion­ship be­tween Rus­sia and China has been grow­ing steadily. Both are wary of US global dom­i­nance and have been in­creas­ing the amount of trade they con­duct with each other. In 2011, China sur­passed Ger­many as Rus­sia’s top trad­ing part­ner, and last year, Chi­nese im­ports reached a record $53 bln, while $40 bln worth of Rus­sian ex­ports went to the su­per­power.

The re­cent dy­nam­ics of global power fol­low­ing the con­flict in Ukraine have left Rus­sia with no choice but to be­come in­creas­ingly de­pen­dent on China. No longer able to ex­port so much en­ergy into Europe, it made sense to the Krem­lin to of­fer its east­ern neigh­bour the en­ergy that China it­self needs thanks to boom­ing con­sump­tion. It signed a $400 bln agree­ment in May to ex­port a fu­ture an­nual 38 bln cu­bic me­ters of gas.

Thus, the re­la­tion­ship be­tween th­ese na­tions may have been given a new lease of life, but make no mis­take: this is cer­tainly not a mar­riage of equals. Although Rus­sia has sup­plied arms to China for decades, it has pre­vi­ously re­fused to sell its best sys­tems. It was re­luc­tant to em­power a neigh­bour that al­ready had four times its eco­nomic out­put, but at present, it is pre­par­ing to de­liver its top S-400 mis­sile sys­tems and Su-35 fighter jets. Rus­sia has what China wants, and is not in a po­si­tion to refuse. Yet, what Moscow needs now, Beijing is in no rush to sup­ply. Busi­nesses, stripped of ties with the West, could be­come in­creas­ingly des­per­ate for money, and Chi­nese in­vestors know it. Many may be bid­ing their time, wait­ing for Rus­sian com­pa­nies to face fur­ther strug­gles, be­fore pounc­ing to make ma­jor ac­qui­si­tions.

Fur­ther, while Rus­sia is keen to di­ver­sify trade and be­come less de­pen­dent on its 70% of ex­ports which are raw ma­te­ri­als, China is mainly in­ter­ested in Rus­sian arms and en­ergy. From China’s per­spec­tive, although the two na­tions may share anti-US sen­ti­ment, its pri­mary goals of fos­ter­ing eco­nomic growth and ex­pand­ing its in­flu­ence in Asia are best served by on­go­ing trade and part­ner­ships with the US and Europe, along with other Asian coun­tries. Here is the crux of the im­bal­ance: for China, Rus­sia only ac­counts for a small per­cent­age of its global trade.

Rus­sia may be un­der pres­sure eco­nom­i­cally, but it is po­lit­i­cally savvy. It will hope to ben­e­fit as much as pos­si­ble from its part­ner­ship with China, even if it has to cut it­self less good deals out of ne­ces­sity, and it may also make a big­ger scene out of th­ese deals than is pro­por­tion­ate. It may be hop­ing that its close ties with Beijing of­fer it ad­di­tional lever­age in ne­go­ti­a­tions with the West. After all, in the long-term, as the world watches, that will cer­tainly mat­ter.

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