Russian Economic Reform

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New Eurasian Age: China’s Silk Road and the EAEU in SCO Space.

Published on April 05 2017
Posted by: jeff

Both Russia and China have at various time spoken about coordinating the activities of the Shanghai Cooperation Organization (SCO), the Eurasian Economic Union (EAEU) and the Silk Road Economic Belt (SREB) part of One Belt, One Road (OBOR). What does this mean? And, what are the prospects and possible implications? Is there to be a new age of Eurasian economic – and power – primacy? Or, is it really simply “Noodles and Meatballs in a Breaking Bowl”? ©

This book was initially prepared for publication by RANEPA (Russian Academy of National Economy and Public Administration) when I was Head/Director of the “International Center for Eurasian Research”.  Instead, because it is at times very critical of many Russian policies, it is being published here on (on 14 August) as an open source book.

TABLE of CONTENTS

INTRODUCTION

At their 3-4 July 2017 meeting in Moscow, Vladimir Putin and Xi Jinping respectively spoke about the formation of a “broad Eurasian partnership” and “coordination of the Belt and Road initiative with the Eurasian Economic Union”.

Putin also referred to this issue several times at the 14-15 May 2017 Belt and Road Summit in Beijing. After a meeting with Xi, Putin said that “the integration” of the Eurasian Economic Union (EAEU) and the Silk Road (SREB) “actually implies a common economic space on the continent”, and in his formal speech at the Summit he said that “by adding together the potential of all the integration formats like the EAEU, the ‘One Belt, One Road’ (OBOR), the Shanghai Cooperation Organization (SCO) and the ASEAN, we can build the foundation for a larger Eurasian partnership”.

At the same summit, Kazakhstan’s president Nursultan Nazarbayev said “the idea of creating a single economic space of Greater Eurasia acquired a new meaning. The SREB can advantageously link the platforms of the SCO, the EAEU and the European Union into a single regional prosperity area”.

What does all this mean? And, what are the prospects and possible implications?

Is there to be a new age of Eurasian economic and power primacy? Or, is it really “Noodles and Meatballs in a Breaking Bowl”? ©

The Silk Road Economic Belt (SREB) part of the Chinese “One Belt, One Road” (OBOR) or “Belt and Road” initiative announced in 2013 has focused increased attention on central Eurasia.

The central Eurasian geographical area is not easy to define, but its importance to the world is immense. Central Eurasia undoubtedly includes the former USSR countries of Central Asia (Kazakhstan, Uzbekistan, Turkmenistan, Tajikistan and Kyrgyzstan) and Afghanistan, but more crucially it also includes parts of – or is of great importance to – their much bigger neighbors Russia, China, India and Pakistan. Central Eurasia is thus a mix of countries and parts of countries, ranging from very small to very large, whose relationships with each other do not always have a happy history.

All these countries have both economic and security issue at stake in central Eurasian developments, and it is not always easy or even possible to disentangle these. This book mainly concentrates on the economic issues and does so by way of examining the most important international institutional arrangements and integration ideas impacting on the central Eurasian geographical space. These are presently dominated by Russia and China, but some changes are underway.

The main institutional arrangements are the Russian-led Eurasian Economic Union (EAEU) and the Shanghai Cooperation Organization (SCO). The main idea is China’s Silk Road Economic Belt (SREB).

The EAEU consists of Armenia, Belarus, Russia, Kazakhstan and Kyrgyzstan. The first two countries are not considered part of central Eurasia, and only make a brief appearance in this book. The present members of the SCO are China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, and (since June 2017) India and Pakistan.

But, exactly how should the SREB and the EAEU be “coordinated” to create a “Eurasian partnership”? Or, how should SREB, the EAEU and the SCO be “linked” to create “Greater Eurasia”?

In December 2015, Chinese Premier Li Keqiang and Russian Prime Minister Dmitry Medvedev signed a “Joint Communique on the results of the 20th regular meeting between the heads of the Russian and Chinese governments” that clearly states “the parties hold that the SCO is the most effective forum for aligning the construction of the SREB with the building of the EAEU”.

In November 2016, Li Xin of the Shanghai Institutes for International Studies (SIIS) wrote a report suggesting that “Chinese scholars” believe that “the SCO should play a central role as a platform for aligning the SREB and the EAEU”.

However, in reality there are many actual and potential issues that stand in the ways of a successful linking of the EAEU and the SREB – and particularly with the involvement of the SCO.

These include the actual uncertain futures of the EAEU and SCO themselves. While Russia would like to see the EAEU expand, particularly with the addition of Tajikistan, the EAEU is having trouble developing a positive internal integration strategy. New SCO members Pakistan and India will undoubtedly bring their own views about what the SCO should and should not be doing.

An Russian International Affairs Council (RIAC) report says thatRussia has not ruled out the possibility that the future of regional security in the area of the SCO’s responsibility could be determined by a strategic balance of the ‘division of roles’ between Russia and China within this organization, with Russia primarily being in charge of security and China being in charge of economic development, trade and mutual investment.”  

Such a division of labor would seem to ultimately put China at the mercy of Russian security interests, and so it would be less keen than Russia on such an allocation of roles. Moreover, not all other members of the EAEU or the SCO are likely to be enamored with such an arrangement.

Apart from the very Chinese Silk Road Fund (SRF), the nominally international Asian Infrastructure Investment Bank (AIIB) is relevant because of its Chinese foundations and focus on issues that will aim to facilitate successful implementation of SREB pronouncements.

This book starts by looking at the general Russia-China relationship because this will largely determine how all other events unfold. Secondly, Central Asia itself is considered with an emphasis on those internal issues which may ultimately impact on the EAEU, the SREB and the SCO. Thirdly, the relationship between Russia and the countries of Central Asia is examined, with a particular focus on the EAEU. Fourthly, the relationship between China and Central Asia is considered. Fifthly, the SCO is considered. The book then moves on to describe and consider the SREB, the SRF and the AIIB as they are ultimately Chinese creatures.

Finally, it considers the ways in which the EAEU, the SCO and the parts of the SREB associated with these countries can work together, and the actual prospects for this. It also concludes with a view about future developments in this part of the world.

Part A:   RUSSIA & CHINA

1.    Political Relationship

2.    Economic Relationship

3.    Influence of Domestic Policies on the Relationship

Part B:   CENTRAL ASIA

1.    Introduction

2.    Domestic and International Economic Data

3.    Relationship between Central Asian Countries

4.    Astana International Financial Center

Part C:  RUSSIA, CENTRAL ASIA & the EAEU

1.    Introduction

2.    Eurasian Economic Union (EAEU)

3.    Russia and Individual Countries of Central Asia

4.    The Way Forward?

Part D:   CHINA & CENTRAL ASIA

1.    Introduction and Security Issues

2.    Economic Issues

3.    Individual Countries

Part E:  SHANGHAI COOPERATION ORGANIZATION (SCO)

1.    What is the SCO?

2.    The Way Forward?

3.  The Effect of New Members (India and Pakistan)

Part F:  “BELT & ROAD” INITIATIVE.

1.    What is the Silk Road Economic Belt (SREB)?

(a)   Reasons for the “Initiative”

(b)   Official Chinese view of the “Initiative”

(c)    Role of Russia, EAEU, CA countries and SCO in official view

(d)   The special case of the China-Pakistan Economic Corridor (CPEC)

2.   Implementation of the SREB

(a)   Practical implementation of SREB

(b)  Financing the SREB (including Silk Road Fund)

3.    Belt and Road “Associates”

(a)   Asian Infrastructure Investment Bank (AIIB)

(a)   BRICS bank

Part G:  PULLING TOGETHER IN THE FUTURE?

1.  Introduction

2.   The Russian View

3.    The Chinese View

4.    Central Asian View

5.    Some Other Issues

(a)  The Thucydides Trap

(b)  EAEU and AIIB: “hard power” and “soft power”!

CONCLUSION

There have been, and will continue to be, various attempts to link the SREB, the EAEU, and the SCO. The analysis laid out in this book suggests that such attempts will have little success. There are a number of reasons.

The first is that the SREB, the EAEU, and the SCO are very different things in any institutional or organization sense. Moreover, the EAEU and the SCO are each close to the peak of their influence and relevance.

The joint report by analysts from the Chongyang Institute for Financial Studies, Valdai Discussion Club, and the Kazakhstan Council of International Relations released in early July 2017 might have been expected to result in a clearer understanding of many of the issues that have already been discussed in this text – but it does not!

Paradoxically, the failure of such a recent report with such multi-lateral input to finally bring some clarity to the SREB and related issues is the report’s strength because it highlights the confused nature of much of the intellectual debate and of many official policies. On the positive side, the report is not afraid to point the finger at some very specific problems and at those who are responsible for them.

The report contains a very forthright statement which indicates the probable reason that it is so weak on coherent analysis: “The current study was accompanied by a heated debate between Russian, Chinese, and Kazakhstani experts, which is reflected in the report.” As discussed throughout this text, the countries of Russia, China and Kazakhstan share little commonality in thinking on many important issues.

The report correctly says that “the ‘Belt and Road’ initiative in itself remains very abstract and subject to ambiguous interpretation: even Chinese experts often hold to opposite views on its essence.”

The report then goes on to say that the Silk Road Fund “is almost the only institutional embodiment of the initiative.” While partly true, this very statement in itself tells us something about the confused nature of discussion about the SREB because, as already discussed in this text, most of the activities of the Silk Road Fund have little to do with the professed “connectivity” objectives of the Belt and Road.

Despite various “philosophical” aspects in the minds of some people, this author regards the SREB as little more than an all-encompassing umbrella-type slogan to give credence and force to central Eurasian projects aimed at increasing China’s economic and political power and security.

Domestic aspects of this include boosting the economic prospects of Xinjiang and other western provinces of China and possibly contributing to reducing over-capacity in various heavy industry sectors. Externally, China wants a secure western rear to its eastern flank which borders on various international contested seas and exposed trade routes. The SREB, whether through Central Asian countries or Pakistan, gives China alternative routes for imports of energy and, to a lesser extent, exports of manufactured goods and industrial capacity.

China now prefers that the original “One Belt, One Road” terminology be replaced with “Belt and Road” because of its widening geographical and political ambitions. The SREB terminology may last longer because of the historical connections that it implies, but at some stage its individual projects will be seen simply as those that any country in China’s position would pursue. To put it another way, there is nothing particularly surprising about the SREB for a country in China’s geographical, economic and political position.

The EAEU is being held together by Russian will-power and may well survive in its present imperfect form for some time. Even if it can attract one or two new members (such as Tajikistan) during the next few years, it will eventually fade because of its own internal contradictions and because its Central Asian country members will increasingly see their future connected to closer relations with China.

The SCO at one stage could have possibly been the basis of greater economic cooperation in central Eurasia, but Russia has been against this – preferring to try to develop the EAEU as the main Eurasian supranational organization working as a “partner” with China. In the view of this author, the indications are that China’s growing confidence in its Belt and Road “initiative” is reducing its interest in the SCO as a vehicle for economic issues.

The succession of India and Pakistan to the SCO will greatly increase its diversity of thinking and interests and this means that it is likely to struggle to avoid becoming little more than a leader’s discussion club.

Given all of the above, it is extremely difficult to see a process in which the SREB and the EAEU are linked in any substantial way. Moreover – in the view of this author – it would be almost impossible for this to occur with the involvement of the SCO.

Yet, in another indication of confused thinking on such issues, the joint report of the Chongyang Institute for Financial Studies, Valdai Discussion Club, and the Kazakhstan Council of International Relations pushes the idea of an EAEU SCO free trade area!

In essence, the SREB and EAEU in the SCO geographical area appear similar to a breaking bowl (the SCO) containing noodles (the strung-out communication routes of the SREB) and a meatball (the flung-together countries of the EAEU which are not a solid mass). All this makes for a very messy meal!

But even a messy meal is a meal, and in the absence of anything else might be consumed if there is sufficient hunger to do so. Which brings us to the second reason why attempts to link the SREB, the EAEU, and the SCO will not be successful. There is simply no agreed appetite among the counties of central Eurasia to change the above trends.

Russia and China are the main players in the context of this book, and will remain so for many years because the other possible main player, India, has neither the Russian historical involvement nor the Chinese financial power to force any significant change in the outlook.

However, the Russia-China relationship is not deep for a variety of reasons, and shows little sign of becoming so. Both countries have a natural inclination – despite a temporary mutual interest in “communism” in the middle of the last century – to look in opposite directions: Russia to the “West” in a westerly direction; China to the “West” in an easterly direction. Over the last two decades or so, the attractions and advantages of the English language and largely “Western” promoted international economic system have benefited both countries, although China has been much more adept than Russia at taking advantage of this.

This author has previously argued that a free trade agreement between China and Russia (or the EAEU) is fundamentally difficult to reach because Russia views any agreement in “quite narrow political and security terms, and its economic agenda is orientated toward new industrial development rather than trade development”. China, on the other hand, “at the current stage, is most interested in enhancing economic development and trade across the Central Asian and wider Eurasian regions”.

As for Greater Eurasia, the above mentioned joint report by the Chongyang Institute for Financial Studies, Valdai Discussion Club, and The Kazakhstan Council of International Relations, describes it as “nothing else than an attempt to grope for new sources of economic growth. Russia sees them in its potential entry to Asian markets and building up trade with EAEU nations, in luring investments in infrastructure projects in Siberia and Far East. China prefers large-scale investments in external infrastructure and gaining access to new natural resources.”

Once again this report is paradoxically useful because this statement is at least partly wrong!

It suggests that after so much discussion there is a broad limited understanding about the Greater Eurasia idea within Eurasia itself. In reality, Vladimir Putin and many influential Russian analysts mainly regard Greater Eurasia as a geo-political concept to reduce the power of the US and build a multi-polar world. The economic growth aspects are secondary.

Putting these trade, security and geo-political factors together allows us to see that the basic reasons for the EAEU and the Belt and Road are different. The EAEU is based on Russia’s conviction that globalization would gradually outlive its usefulness and the perceived opportunity for it to form a center of economic and political power in central Eurasia. China, however, launched its Belt and Road as a way of taking further advantage of globalization and in the process boosting its own security.

The 3-4 July 2017 meeting between Presidents Putin and Xi in Moscow seems to have resulted in little more than motherhood-type statements. Putin said: “We held an in-depth exchange of opinions on joining the activity of the EAEU with the Chinese initiative of the SREB. This is a highly promising direction, putting collective effort in line with our idea to form a broad Eurasian partnership.” Xi Jinping said: “We are developing our coordination of the One Belt, One Road initiative and the EAEU” and work to “promote development and prosperity on the Eurasian continent.”

The Russia-China relationship as it now exists is mainly the creature of the relationship between Presidents Vladimir Putin and Xi Jinping and whatever difficulties both countries are having in their external security environments.

Baring health issues, it would seem that Putin and Xi will remain the most powerful figures in their countries into the early 2020s. Both see themselves as historical figures leading the rejuvenation of their countries. Both want to use international economic relations to boost the power and prestige of their countries, although the way that they go about this is not the same.

For a variety of reasons Xi is likely to be more successful in the international arena than Putin. If nothing else, demographics and the catch-up aspect of economic development that benefits China make this almost inevitable. But, it is also clearly the case that China is showing a much defter hand on the international public relations (PR) front and acts to avoid unnecessary conflict, whereas Russia seems to bask in such conflict.

While domestic policies have been little more than touched upon in this book, it is not clear that either Xi or Putin will ultimately put economic effectiveness ahead of domestic political goals. This will spill-over into international relations and will slow the development of closer economic ties between Russia and China because non-political business decision makers will much prefer to deal with countries where business is less political.

While much of the future of the central Eurasian area will be determined by the relationship between Putin and Xi, there is also ultimately a third player, in the form of the child-like Donald Trump and the self-important policies of the USA. If Putin and Xi are attracted to each other, it is the US that has pushed them into their embrace.

While Crimea and the South China Sea remain significant issues for US policy makers, Putin and Xi will find solace in each other. If the US removed such pressure, the present leader-centric Russia-China relationship would quickly show sign of fatigue due to the absence of support from more fundamental deep ties between the two countries and due to their competition in the central Eurasian region. The so-called “Thucydides Trap” might then show prominence as Russia clings to the idea that it should be the main security provider in the region and China begins to get nervous about this.

In the meantime, China seems in no hurry to change present circumstances and trends in central Eurasia because it has the upper hand, and will continue to pay lip-service to ideas of greater cooperation with Russia in order to prevent it playing a SREB spoiling role. Russia will continue to try to figure out what it can do to hold its position in central Eurasia and – unrealistically – engage in EAEU and Greater Eurasia dreams about how it can enhance it!

In the view of this author, significant cooperation between the EAEU, the SREB and the SCO – or even between any two of these – is highly unlikely. The idea of Greater Eurasia is a fantasy!

READ THE WHOLE BOOK HERE:

http://russianeconomicreform.ru/wp-content/uploads/2017/08/New-Eurasian-Age-with-Chinese-Silk-Road-and-EAEU-in-SCO-Space-Update.pdf