Victory Day for China?

May 11, 2015 | By Konstantin Avramov 

While Putin has touted Russia’s pivot to the East, it is China who is reaping all of the benefits.

The May 9th Victory Day celebration in Moscow was a familiar sight for those accustomed with the practice of determining the Soviet hierarchy by watching officials’ placement on top of Lenin’s mausoleum during parades.  The only person sitting directly next to Russian President Vladimir Putin was Chinese Premier Xi Jinping.  The next closest leader to Putin was newly re-elected president of Kazakhstan Narsultan Nazarbaev.

There is little doubt as to the message behind the parade seating arrangement.  Faced with what it perceives as hostility from the West, Russia is turning its focus toward the East.  Saturday’s event sought to symbolically underscore Moscow’s commitment to its pivot to Asia, designed to wean Russia from its economic reliance on the European financial system.

Even before the parade, Russia has been strengthening its ties with both China and Kazakhstan.  For Russia, China has become an increasingly close partner following the application of European sanctions in the wake of Russia’s annexation of Crimea.  A year ago, Moscow and Beijing signed an historic 30 year $400 billion deal that facilitates Russian gas flowing into China via the so-called “Power of Siberia” pipeline.  On May 8th of this year, Putin and Xi signed a number of additional bilateral economic agreements.  For example, China agreed to invest billions of dollars into a high-speed Moscow-Kazan railway, while China’s Ex-Im Bank agreed to provide a 3.9 billion yuan credit line to Russia’s VTB bank to finance similar projects.  Moreover, several Chinese companies signed memorandums of understanding in regard to helping Russia develop capacity to produce a number of high-tech metal alloys.  Both sides also agreed to cooperate in a leasing arrangement for the Russian Sukhoi Super Jet (SSJ-100), as well as to partner in the development of a new heavy lift helicopter.

Despite these deals, not all is as it seems in Russia’s Asian pivot.  A closer look at the Russia-China agreements reveals a decidedly one-sided advantage to China.  First, the much hyped Power of Siberia project is currently at a standstill, with China weary to provide Russia credit to cover construction costs until Russia’s economic situation improves.  Beyond the pipeline credit, most experts agree that China received highly favorable terms on gas price.  In addition, the Moscow-Kazan railway, while providing modern transportation to Russia, will be using largely Chinese-made technology, with Russian firms simply providing raw materials, decreasing the potential multiplier effects of infrastructure technology transfer.

The geopolitical domain shows other signs of incongruence. In building its Silk Road Eurasian trade initiative, China has been encroaching into territories Russia sees as being within its own sphere of influence.  Prior to touching down in Moscow, Xi stopped off in Kazakhstan where he signed a number of economic agreements with President Nazarbaev.  Shortly after the Victory Day parade, Xi flew to Minsk, where both sides signed a number of similar deals, largely focusing on infrastructure development and Belarussian natural resource exports.

Few will argue that increased Chinese funding of Russian and Eurasian infrastructure is a total loss for the recipient countries.  Yet if one is to compare the relative advantages of these deals, it is clear that China has a sizable advantage.  Therefore the appearance of Xi as the distinguished guest of honor at Saturday’s parade is less about seeking long-term economic partnership with Russia and more about leveraging China’s investment power through snapping up value items put into the clearance isle by an increasingly feeble Russia.