SHAFAQNA – In early May 2015 Chinese President Xi Jinping visited the three founding member states of the recently-established Eurasian Economic Union (EEU): Russia, Kazakhstan and Belarus. These three countries founded the EEU in May 2014, and the EEU came into effect at the start of 2015. During his visit, President Xi and his delegation signed almost 90 agreements with the EEU founding members on issues of economic cooperation, including trade and investment in key sectors like energy and infrastructure. These agreements mark the acceleration of bilateral and regional cooperation between China and the EEU founding members, including cooperation within the frameworks of regional economic development initiatives like China’s Silk Road Economic Belt.
The EEU is significant for the Silk Road Economic Belt as it represents a common market of over 170 million people, and the economy of the EEU has been predicted to grow by 25% by 2030. China sees the Silk Road Economic Belt as contributing to the economic growth of the EEU by bridging the regional economies of the EEU and the Asia-Pacific, thereby offering an economic stimulus to both regions.
Prior to the launch of the EEU in January 2015, the establishment of a customs union in 2010 between Russia, Kazakhstan and Belarus stimulated trade between these countries and China. In 2012, China accounted for 114.6 billion USD in trade with Russia, Kazakhstan and Belarus, and China became the largest trading partner with the customs union. To further this trading relationship, China and the EEU will work towards the establishment of a free trade zone. In the meantime, China and the EEU will facilitate economic integration through the establishment of transborder economic cooperation zones and industrial parks.
China and its partners in economic cooperation in the EEU have to do a delicate balancing act to ensure that their economic cooperation—especially over the Silk Road Economic Belt—is not perceived by Moscow as an attempt by Beijing to subvert Russia’s traditional sphere of influence. This is important as economic growth for all the countries concerned will be negatively impacted by a revival of the Cold War-era Sino-Soviet split. As such, it is important that Russia continue to be involved in the regional economic cooperation over the Silk Road Economic Belt, and that it achieve economic gains from this cooperation. As the Silk Road Economic Belt has been designed by China to be a non-hegemonic path towards win-win cooperation and economic growth for all the participating countries, Russia should have no reason to fear that its continued political preeminence in the EEU will be at risk.
During President Xi Jinping’s visit to Russia, he recognized the contributions of Russian advisors to China’s development, both during the early days of the People’s Republic of China, and later during China’s period of economic reform after 1978. This was significant as it highlighted China and Russia’s long history of friendship, and the hope that this friendship will continue to flourish in the future. In this historical context, the Sino-Soviet split may be seen as an unfortunate aberration in the broader trajectory of Chinese and Russian friendship. The current warmth between China and Russia dates from Mikhail Gorbachev’s efforts at rapprochement. Since the establishment of the Russian Federation in 1992, the friendship between China and Russia has deepened. Russia was the site of President Xi Jinping’s first state visit after assuming office in March 2013, and in the two years since then both Presidents Xi Jinping and Vladimir Putin have held over ten meetings.
This long-term friendship between China and Russia has been greatly facilitated by their shared outlook on international relations, in particular their suspicion of American assertions of unipolarity, and their common interest in creating a multipolar world order. While both nations have had their occasional disagreements, for example, when China chose to remain neutral with regard to Russia’s intervention in Georgia, their relationship has generally been characterized by cooperation. One good example is their ongoing cooperation under the framework of the BRICS bloc of high-growth emerging economies. Apart from their efforts to establish the BRICS New Development Bank, which is currently scheduled to be launched in late 2015, China, Russia, and their counterparts in the BRICS bloc are also launching a common reserve fund to serve as an alternative to emergency loans from the American-dominated International Monetary Fund. Apart from their cooperation on the BRICS initiatives, China and Russia are also cooperating on China’s “Belt and Road” development framework, including the AIIB financing initiative, of which both are serving as founding members. In the social field, both China and Russia have sought to encourage mutual understanding between their peoples through the establishment of Russian and Chinese cultural centres. China, for example, has opened over twenty Confucius Institutes and Confucius Classrooms in Russia. In terms of bilateral trade, China has become Russia’s largest trading partner. From 1994 to 2014 Sino-Russian bilateral trade dramatically increased from 7.7 billion to 95.3 billion USD.
The economic linkages between China and Russia are set to deepen with the cooperative projects established by President Xi’s visit. Due to Western sanctions over Russian intervention in Ukraine, Russia’s cooperation with China has become critical for its economic growth. On the eve of Russia’s massive 2015 Victory Day parade, Presidents Xi and Putin signed 32 bilateral agreements, including the construction of a high-speed rail line between Moscow and Kazan, and a road map for Sino-Russian cooperation in Central Asia that balances the Silk Road Economic Belt projects with those of the EEU. Under this road map, China will seek to connect its Silk Road Economic Belt with Russia’s initiative for a Trans-Eurasian Belt. In particular, President Putin’s plan for a trans-Eurasian railway will be connected with rail infrastructure development in the Silk Road Economic Belt. Cooperation makes sense as the improvements to infrastructure that will take place under the Silk Road Economic Belt will benefit Russian economic development in its Far East.
China and Russia will also increase their economic cooperation in a range of sectors including energy, infrastructure, and finance, and both countries will also seek to increase their bilateral investment. One of the new joint ventures in the energy sector is a project by China Three Gorges Corporation and RusHydro to build a 320-megawatt hydropower plant on Russia’s Bureya river.23 Also in the energy sector, China and Russia signed an agreement on the supply of Russian natural gas through the planned Western Route pipeline, which will provide China with 30 billion cubic meters of natural gas per year. In May 2014, China and Russia had signed an earlier deal on natural gas worth 400 billion USD. Under this deal, Russia will supply China, through its Eastern Route pipeline, 38 billion cubic meters of natural gas annually from 2018 for 30 years. In November 2014, China and Russia deepened their energy cooperation with a further similarly-sized deal on natural gas. These mega-deals with China will help Russia diversify its energy exports from the politically difficult European market.
Outside of the energy sector, the new cooperative projects between China and Russia include gold exploration as well as the joint development of a new heavy-duty transport helicopter to rival Boeing’s CH-47 Chinook helicopter. China will also increase its debt financing of Russian companies, allowing these companies access to financing they had previously lost because of Western sanctions against Russia. China Construction Bank (CCB) and the Russian Direct Investment Fund (RDIF) will jointly extend up to 25 billion USD in loans to Russian companies, with CCB being responsible for 85% of the financing. In addition, CITIC Merchant and RDIF will jointly establish a Russia-China Investment Bank which will give Russian companies greater access to Chinese financing. Western sanctions hence have ironically allowed Chinese banks to take over the market share that was previously occupied by Western lenders.
President Xi’s visit to Kazakhstan was significant as this was where he first announced the Silk Road Economic Belt in 2013. While Kazakhstan has welcomed its participation in the Silk Road Economic Belt as a means of reducing Kazakh dependence on Russia’s troubled economy, the Kazakh government has in the meantime developed its own economic development strategy. Like his Russian counterpart, Kazakhstan’s President Nursultan Nazarbayev seeks to connect his country’s Bright Road economic policy with the Silk Road Economic Belt. Both development strategies complement each other as they focus on infrastructural development of key areas including energy, industry, and transportation. Also, Kazakhstan, which is a founding member of the AIIB, will have financing options from the AIIB for its Bright Road infrastructure projects. For example, the road construction projects under the Bright Road development plan over the next 2 years are estimated to cost 9 billion USD.
Kazakhstan sees its geographical location as providing a strategic bridge between Europe and Asia. This strategic location offers significant opportunities for trade and investment, especially from regions of economic growth like China. Indeed, during President Xi’s 2013 state visit to Kazakhstan, President Nazarbayev expressed his hope that cooperation with China would accelerate his country’s economic growth. China has since become the largest trading partner of Kazakhstan. Their bilateral trade increased from 20.4 billion USD in 2010 to over 28 billion USD in 2013, but fell to 22.4 billion USD in 2014. China and Kazakhstan aim to increase their bilateral trade to 40 billion USD in 2015. China has also become one of the top investors in Kazakhstan. In December 2014 China and Kazakhstan signed agreements worth 14 billion USD in energy, housing and infrastructure, and in March 2015, further agreements worth 23.6 billion USD were signed in the automobile, hydropower, steel, and oil refining sectors. Indeed, Kazakhstan has become an important source of primary resources for China, including oil.
To further accelerate such investment, China has encouraged its entrepreneurs to invest in Kazakhstan, especially in industrial projects. China and Kazakhstan have also planned further joint projects at the Khorgos free trade zone, which already serves as a key source of economic growth for Kazakhstan’s Almaty region. Such economic development has implications for security, as economic development in Kazakhstan has the potential for spilling over into economic development—with possible dividends for peace—in China’s restive Xinjiang region. The parallel development of the China-Pakistan Economic Corridor has similar security implications for Xinjiang.
Both China and Belarus have aggressively pursued economic cooperation since they upgraded their bilateral relationship to a comprehensive strategic partnership in 2013. During President Xi’s visit, China signed an estimated 15.7 billion USD worth of infrastructure investments and trade deals with Belarus. One such deal, for a shipment of 4 million tonnes of potash over 5 years, was worth 1.3 billion USD. China also extended 5.5 billion USD in loans to Belarus, with 1 billion USD to finance Belarusian banks. Not only do these economic linkages with China allow the Belarusian economy to reduce its dependence on the troubled Russian economy, the planned modernization of Belarusian infrastructure will help Belarus to accelerate its economic development. Also, as with Kazakhstan, the improvements in its infrastructure will allow Belarus to leverage its strategic geographical location to become a key hub for overland trade between China and Europe. Trade between Belarus and China expanded from just 34 million USD in 1992 to almost 4 billion USD in 2014. China is now Belarus’ largest Asian trading partner and fifth largest global trading partner. Chinese investment in Belarus has been growing since 1992, and currently stands at over 400 million USD. To facilitate trade and investment, China’s and Belarus’ central banks have signed a 1.15 billion USD currency swap agreement.
Like Kazakhstan, Belarus has been a key supporter of the Silk Road Economic Belt. Belarusian President Alexander Lukashenko has highlighted the primary importance to the success of the Silk Road Economic Belt of the construction in Belarus of the land transportation infrastructure of highways and railways, as well as infrastructure for air transportation. For its part, to further enhance China-Belarus cooperation, China will align its Silk Road Economic Belt projects in Belarus with the Belarusian government’s national development plans, including President Lukashenko’s strategic vision of economic integration across Eurasia. Such alignment can be seen in cooperation between China and Belarus in key social development projects like the construction of low-income housing. China and Belarus are also exploring cooperation in science and technology as well as tourism and other forms of cultural exchange. To deepen Sino-Belarusian economic cooperation, President Xi has called on local governments in China and Belarus to explore opportunities for investment and other modes of economic cooperation at the local government level.
Like Russia, Belarus’ support of Chinese economic engagement has been intensified by Western sanctions. Belarus has suffered international isolation since 2010 when the US and the European Union (EU) imposed sanctions on the Lukashenko regime following its crackdown on the opposition. While the Belarusian economy has been propped up by Russia—whose economy has itself been negatively impacted by Western sanctions—the Belarusian government is seeking to diversify Belarus’ economic lifelines by encouraging investment from China. Chinese investment is particularly attractive given the Chinese government’s stand against foreign interference in a country’s internal affairs, including interference over human rights.
The major site of Sino-Belarusian economic cooperation is the Great Stone Industrial Park near Minsk, which is being positioned by China and Belarus as a flagship project of the Silk Road Economic Belt. Its importance is such that its success will showcase to the rest of the region the economic benefits of engagement with the Silk Road Economic Belt. Costing an estimated 5 billion USD, Great Stone Industrial Park will locate Chinese manufacturers within 170 miles of Poland and Lithuania, both gateways into the EU, as well as offer customs-free entry into the Russian and Kazakh markets of the EEU. It will also allow these manufacturers to enjoy the cost benefits of the educated Belarusian workforce, whose wages cost approximately half that of their Polish counterparts. Belarus, in turn, seeks Chinese investment to stimulate its economy. The first stage of Great Stone Industrial Park is anticipated to be ready by 2020 and the second stage by 2030. Even before the scheduled 2020 completion of the first stage of the industrial park, President Lukashenko has sought the expansion of the Great Stone project. The Belarusian president has been inspired by China’s economic reforms for his government’s restructuring of the Belarusian economy. In particular, China’s successful implementation of industrial parks inspired the Great Stone project, which President Lukashenko expects will contribute 50 billion USD in exports to the Belarusian economy.