CHINA RISING: Eurasian eyes turn east

CHINA RISING: Eurasian eyes turn east
China hosted the One Belt One Road (OBOR) summit in Beijing this May.
By Ben Aris in Berlin July 10, 2017

When China hosted the One Belt One Road (OBOR) summit in Beijing this May the list of attendees was a “Who’s Who” of emerging market leaders. With some $4 trillion of investment into roads, rail and air links on offer – as well as innovation parks and logistic centres that will become nodes in a sprawling network designed to connect Beijing with Brussels – many eyes in Eurasia are turning away from the West and Russia and towards China.

The promise of inbound Western foreign direct investment had anyway largely failed to materialise in most of Eastern Europe. The accession countries that joined the European Union in 2004 have done well, but everyone east of them has done badly. Rather than the swashbuckling risk-takers Eastern Europeans expected, Western investors have proven to be cautious and slow moving. Worries over political risk and poor corporate governance were exacerbated by the global financial crisis and the political stand-off with Russia, which forced countries in the region to take sides.

In the midst of all this China has come of age and begun to invest the trillions of dollars accumulated from years of cheap exports. The Chinese have been even slower to move but now they are, and because the country operates largely at a state level, the sums on offer are up an order of magnitude.

Moreover, China is investing in the things that Eurasian countries want the most: economic-multiplying infrastructure and raw material resource development for the most part.

Western corporations are looking to produce and sell to the local markets; China wants to build a transport corridor from its domestic production base so it can carry its goods cheaper and faster to the rich markets of the West. The bedrock on which China’s policy is founded is to create jobs at home for its 1.1bn strong population.

The Kremlin, strapped for cash by sanctions, a failure to reform and the collapse of oil prices, has been put in a weak negotiating position vis-à-vis China. And Beijing has had no qualms about using its leverage. In 2014 China’s General Secretary of the Communist Party Xi Jinping flew to Russia to sign off on a gigantic $400bn deal to supply Russian gas across the Siberian border to China’s underdeveloped northwest territories. But on the way to St Petersburg he stopped off for a day in Ashgabat to sign the biggest gas deal ever with Turkmenistan to deliver up to 65bn cubic metres of gas a year that undermined the need to buy Russian gas.

Yet Russia is more and more seeing China’s push as an opportunity rather than a threat. In the 1990s China’s trade turnover with Russia was steady at about $5bn-$7bn a year. However, it took off after Russian President Vladimir Putin took office in 2000, rapidly rising to a peak of $95bn in 2014. Trade took a hit in the “silent crisis” years of 2015-2016 that hurt everyone in the Commonwealth of Independent States but it is growing again this year and on course to top $80bn this year. Putin has set a goal of $200bn by 2020.

The relationship with the Chinese state began as a trade deal, but it has become progressively more political. It was not for nothing that when Xi Jinping took office in March 2013 his first trip abroad was to Moscow. To escape its blockade by the West, Russia has tried to shape the new emerging economies such as China into a rival global alliance.

Many of the emerging economies share Putin’s objection to the unipolar world with the US as leader and would prefer to see a multipolar world with bodies such as the G20 sharing responsibility for global affairs. China has been a vocal and outspoken critic of the US sanctions on Russia, and it has been a willing partner in this drive, though it is more narrowly focused on its own national interests.

The BRICs have metamorphosed into a trade club and today is becoming a global political force. Various other political bodies have also emerged to provide new forums for these countries to coordinate their efforts such as the Eurasia Economic Union (EEU) for trade, the Shanghai Cooperation Organisation (SCO) for security, or the troubled Trans-Pacific Partnership (TPP). None of these bodies are especially powerful or influential as yet – indeed many, like the EEU, don't work very well. But they represent an attempt to set up new multinational bodies that do not include the old world.

This is part of a series looking at the implications of China's growing interest in Central and Eastern Europe and Eurasia.