Why China is unfazed by Russia’s creation of a Eurasian Union

RUSSIA is gradually embracing its former Soviet neighbours as President Vladimir Putin realises his grand vision of a Eurasian Economic Union (EEU).

The EEU, which will consist of three members — Russia, Belarus and Kazakhstan — becomes a reality on January 1, 2015, writes GIS guest expert Vaughan Winterbottom.

Kyrgyzstan and Armenia are scheduled to accede to the bloc sometime in 2015. Tajikistan has also expressed an interest in joining.

Experts see President Putin’s drive towards securing a Eurasian Union as guaranteeing his country’s continued relevance in an Asia which looks to be increasingly dominated by China. But far from showing concern, China remains remarkably nonplussed about the nascent organisation.

President Putin outlined the rationale for the EEU in October 2011 saying he drew lessons from the integration of post-War Europe and proposed the Union as a comparable economic structure to the European Union, the United States, China, and the 21-member Asia-Pacific Economic Cooperation (APEC).

The comparison is seen by many as exaggerated. The EEU’s combined market contains 178 million people and registers a total Gross Domestic Product of roughly US$2.6 trillion — less than one fifth that of the US or EU, and one third that of China. Russia accounts for about 80 per cent of both the Union’s population and GDP.

That is not to say the EEU would be irrelevant to the global economy. Together the three founding states possess 15 per cent of the world’s oil reserves, and a fifth of all natural gas resources.

The signing of the EEU agreement in May 2014 in the Kazakh capital of Astana was a geopolitical victory for Mr Putin, whose actions in Ukraine this year have highlighted the differences between the West’s inclusive liberalism and Moscow’s conservative, pragmatic authoritarianism.

The victory was not without costs, however. The Union’s economic clout is severely diminished by the absence of Ukraine, long targeted by Mr Putin as a potential member.

Russia’s actions in Ukraine also led to considerable unease about the extent to which the EEU would take the form of a political union.

However, at the May signing, Bakytzhan Sagintayev, the first deputy prime minister of Kazakhstan, said, ‘We are not creating a political organisation; we are forming a purely economic union.’

In several respects, the EEU would seem to present a challenge to Chinese interests in Central Asia.

First, the Union is a competing supranational body to the Shanghai Cooperation Organisation (SCO), the Central Asia-focussed economic and security bloc over which China and Russia preside as dual hegemons.

Second, the bloc’s Common External Tariff is intended to raise internal trade: in Central Asia, this import substitution would seem to come at the expense of Chinese business.

Third, China and Russia are often regarded as competing for Central Asia’s natural resources: the EEU may tip the balance in favour of Russia in securing future energy contracts.

Despite these potential contradictions, China remains remarkably nonplussed about the nascent organisation. Domestic Chinese commentators have adopted a ‘let’s wait and see’ attitude.

What explains this ambivalence? Certainly, China and Russia maintain at least the appearance of friendship on the international stage.

Economic and geopolitical calculus offers a more powerful explanation than friendship in understanding China’s nonchalant response to the EEU. China will lose little from its establishment, and may even benefit.

While there is an obvious overlap in the authority of the EEU and the SCO, the importance of the SCO to China has dwindled significantly in recent years.

Founded in 2001, the SCO has helped the projection of Chinese economic and strategic interests into Central Asia. Beijing needed Moscow on-side to set about this task.

Today, the task is complete: China is the largest trade partner of four of the region’s five countries (Uzbekistan is the exception). Its trade volume with Central Asia stood at US$46bn in 2012, 100 times what it was at the break-up of the Soviet Union.

The SCO provides a useful framework for multilateral dialogue on transnational infrastructure and transit trade issues.

But as Central Asian nations’ dependence on Chinese money grows more pronounced, bilateral deals will proliferate. Chinese President Xi Jinping clinched a host of bilateral energy deals with Turkmenistan, Kazakhstan and Uzbekistan on a visit to the region in September 2013.

Chinese imports from Central Asia predominantly come in the form of energy. But a 2014 study suggests there is ample gas in the region for China’s foreseeable needs without impacting on Russian supply.

Whether or not the EEU grows to become the economic heavyweight which President Putin envisages is therefore largely irrelevant from the Chinese perspective.

Beijing’s economic interests in Central Asia are secure, and it may even stand to benefit from enhanced regional security and lower intra-regional transit costs under the Union.

worldreview