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The Bear and the Dragon mean
business
By Sergei Blagov
MOSCOW - Relations between Russia and China are
set to reach new heights on a wave of geopolitical
self-interest, bilateral trade and - ironically for two
such old and bitter Cold War sparring partners - a
growing trade in arms.
Economically, trade
turnover between the two countries was up roughly 20
percent in the first half of this year compared to the
same period in 2001, to about US$5.5 billion. Of this
amount, $1.3 billion accounted for China's exports to
Russia (Russia runs a healthy surplus in its trade with
China). To encourage this trend, Russian Prime Minister
Mikhail Kasyanov will travel to Shanghai from August
21-23 for talks with his Chinese counterpart Zhu Rongji.
The two are expected to ink four business deals,
including an agreement on banking cooperation.
Also, a group of Chinese officials and 50
businessmen traveled to Moscow, Zelenograd and Nizhny
Novgorod earlier this month to find ways to work with
Russia in high technology. During the course of their
visit, which ended on August 8, the Chinese
representatives of 26 energy, aviation, metals and
agriculture firms reportedly discussed joint ventures
and projects.
Then, on August 12, Grigory
Polischuk, deputy head of Russia's space agency,
announced that Russia and China had finalized a
blueprint for cooperation in space research through the
year 2005. In the first six months of this year, a total
of 27 hi-tech contracts worth $20.8 million were signed
between Russian and Chinese firms (compared to contracts
worth $11.7 million signed in 2001), according to
Russian statistics.
However, "it is well
understood" (as an unreconstructed old-style Soviet
would say) that Moscow is largely interested in tapping
China's armaments market. That interest was symbolized
by the August 19 flight of 10 brand new Su-30MKK
fighters from Komsomolsk-on-Amur to China's Uhu airbase
as a part of a contract to supply China with a total of
28 Sukhois. Over the past year, Russia has secured a
number of multi-million dollar contracts to build
military hardware for China, including a $1.4 billion
deal to supply the Chinese navy with two
Sovremenny-class destroyers. Moscow and Beijing have
even reportedly drafted plans for Sino-Russian joint
military exercises designed to test the reliability of
bilateral military communications.
From the
point of view of domestic Russian politics, what's
interesting about all this is that the Chinese market
has set off a series of fierce competitive battles among
Russian producers and lobbying groups, battles marked by
court disputes and corruption allegations. Notably, the
government's plans to reverse an earlier decision to
award a $1.5 billion contract to build 38 Sukhoi-30MKK
jet fighters for China to Komsomolsk-on-Amur Plant, or
KnAAPO, and give it to an umbrella firm, AVPK Sukhoi,
has caused an uproar.
Following Prime Minister
Kasyanov's decision to take the contract from the KnAAPO
and give it to AVPK Sukhoi, the Khabarovsk region's
governor Viktor Ishayev said that the move could cause
massive unemployment in Komsomolsk-on-Amur town. Ishayev
also pledged to lobby Russian President Vladimir Putin
in an attempt to secure the lucrative contract for
KnAAPO.
Last month, in an unprecedented move for
a state-controlled company, KnAAPO sued the Russian
government to contest the decision. On August 4,
Russia's Supreme Arbitration Court reportedly held
closed hearings but did not pronounce any ruling.
At the moment, it remains to be seen whether the
controversy around KnAAPO could affect deliveries of the
Su-30MKK, as well as AA-12 missiles, designed to be
deployed on Su-27s and Su-30s.
Moreover,
Russia's deal to build two more Sovremenny-class
destroyers for the Chinese navy has also been marred by
scandals. The $1.4 billion deal to supply the
destroyers, known as "Project 956E" in Russia, was
clinched in Moscow last January. The government had
initially named the Northern Wharf shipbuilding facility
in St Petersburg as the contractor for the deal, the
firm having built destroyers for the Russian navy and
supplied two previous such destroyers to China,
delivered in December 1999 and November 2000. After
China reportedly transferred $610 million to Northern
Wharf as payment for the destroyers, the deputies of the
Russian parliament claimed that the company had failed
to pay $300 million in taxes. Subsequent to this, a
government tender commission recommended that Baltiysky
wharf carry out the rest of the contract.
But
then the government moved to give the contract back to
the Northern Wharf, and in response, Baltiysky wharf
sent a letter to Kasyanov saying that the plant, which
contributes heavily to the construction of the Project
956 destroyers, would refuse to supply components should
the contract be taken away. The government replied that
it would not tolerate any ultimatums from Baltiysky, yet
the situation around this contract reportedly remains
unresolved.
So much for the scandals.
Geopolitically, the growing Russo-Chinese arms trade has
some even more interesting aspects. It has been more
than a year since Russian and Chinese political leaders
pledged in July 2001 to forge some sort of "strategic
partnership". At the time, Putin and Chinese President
Jiang Zemin signed the "Treaty of Good Neighborly
Relations, Friendship and Cooperation" to be valid till
2021. The treaty specifically states that the two
nations are not forming a military alliance, adding that
bilateral "military-technical cooperation is not
directed against third countries". In the treaty, Russia
also acknowledged that "Taiwan is an inalienable part of
China", and opposed "any kind of independence for
Taiwan".
Yet, even as Russia sells its Sukhois
to China, it also continues deliveries of the final
modification of its Su-30MKI fighter jet to India - 10
fighters this year, and another 22 to be delivered next
year. The Sukhoi-30, known as MKI (Multipurpose
Commercial for India) is equivalent to the Su-37 under
development for the Russian Air Force and has been
reported to have an edge over the "MKK" (Multipurpose
Commercial for China).
There are other issues,
including tax disputes and allegations of espionage.
Earlier this month, authorities of Russia's Nakhodka
port city, Primorie region, announced plans to shut down
roughly 100 out of a total of 125 companies there fully
owned by Chinese businessmen. Chinese firms dodged
taxes, says Sergei Piliyugin, Nakhodka's chief tax
inspector, who has already shut down six such offending
companies. And Vladimir Schurov, professor of Russia's
Far Eastern Institute of Oceanology, is still being sued
on espionage charges relative to his alleged attempts to
sell Russia's hydrosonary know-how to China.
Nonetheless, these small incidents have hardly
affected bilateral Russo-Chinese ties so far. The
Kremlin has been very keen to remain on good terms with
Beijing, and last week refused to grant an entry visa to
the Dalai Lama, who was due to enter the country on
September 2 on a three-week journey to Russia's Buddhist
regions Buryatia, Kalmykia and Tuva. A few Russian
Buddhists demonstrated outside the Russian Foreign
Ministry in Moscow, and Buddhist community leaders did
send an open letter to Putin calling on him to allow the
Dalai Lama to visit. Yet they failed to convince the
Kremlin as the Russian Foreign Ministry said that it was
concerned about the possible "political overtones" of
such a visit. (In 2001, Moscow refused to give transit
visa to the Dalai Lama to travel to Mongolia.)
So the dance continues. Last month, Russian
Foreign Minister Igor Ivanov traveled to Hong Kong and
Macau to explore closer economic and trade cooperation.
Subsequently, he met with his Chinese counterpart Tang
Jiaxuan on the sidelines of an Association of Southeast
Asian Nations meeting in Brunei, where he described the
countries' bilateral ties as possessing "great
vitality". He also characterized trip to China as one
heralding "a new stage of long-term, all-round bilateral
cooperation".
Expect more such rhetoric when
Putin visits Beijing later this year for a planned state
visit. Expect a few more arms deals, too.
(©2002
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